Tuesday, March 29, 2016

Is there a Correlation Between Family Enterprise Life Cycles, Advisors and Trust?

In the recently published journal article in the Family Business Review, “Which type of advisors do family businesses trust most?” (http://fbr.sagepub.com/content/28/3/211), authors Perry, Ring and Broberg use socioemotional selectivity theory, or SEST – from the discipline of psychology – to examine the relationship between the age of a family business and its trust in family or professional business advisors.

With the knowledge that people experience changes in their priorities as they age, the researchers argue that SEST could also be applied to the social behavior of some family businesses as they age and pass from one life stage to another (author Kelin E. Gersick’s life stages of the family business are commonly referred to as the founding stage; the sibling partnership and then the cousin consortium), prioritizing emotional goals over knowledge goals as they progress.

The authors consider SEST’s “emotional goals” very similar to family business’ “socioemotional wealth” and SEST’s “knowledge goals” roughly equivalent to family business’ “financial wealth.” The term ‘socioemotional wealth’ is becoming more frequently used in family business literature in an effort to better-define the non-financial wealth enjoyed by many family firms, and “refers to the collective, affective capital that a group possesses (Berrone, Cruz, & Gómez-Mejia, 2012) …. socioemotional wealth includes the abilities to further family goals and perpetuate family values within the business and to use the business as a means of maintaining intrafamily intimacy (Berrone et al., 2012; Gómez-Mejia, Cruz, Berrone, & De Castro., 2011; Gómez-Mejia, Haynes, Núňez-Nickel, Jacobson, & Moyano-Fuentes, 2007).”

The authors point out that in their study, the use of the term “professional business advisors” includes accountants, management or strategic consultants, financial planners, moral counselors and others, and does not include “family business specialty consultants,” which is the term they use for professional advisors with expertise in family enterprise. By “family advisors” the authors are referring to family members who are employed in the company and whom “are often more familiar with issues in the family and business and can therefore provide advice on a wider scope of topics than can professional, nonfamily advisors. Family advisors can knowledgably provide advice to their relatives related to ownership, management, and family issues.”

While the findings of the study did not ultimately support a direct relationship between a family business’ age and the type of advisors who are most-trusted, the results did indicate a relationship between a family business’ age and wealth emphasis, suggesting that “as a family business’s age increases, it places greater emphasis on socioemotional wealth and less emphasis on financial wealth,” as well as a subsequent correlation between wealth emphasis and the types of advisors who are most trusted: “… as family businesses age, an emphasis on socioemotional wealth increases; as socioemotional wealth emphasis increases, family businesses tend to place greater trust in family advisors.”

The authors note that although there were several limitations to their study, perhaps one of the most valuable outcomes is the introduction of SEST to the family business literature, in which there is great potential for more research, particularly with the “growing recognition of the importance of socioemotional wealth in family business.”

Ultimately the study is not as insightful into the field of family enterprise advising as one might hope, because it focused on two different types of advisors which are distinctly different. However, the relation between the life stage of a family firm and its types of priorities (financial, socioemotional, or otherwise) provides valuable information for advisors working with and within family firms.

Furthermore, the researchers point out that:

“the strength of the family vision may also play a role in the selection of family versus nonfamily advisors … when a strong family vision exists, the leaders are more likely to select and implement socioemotional wealth goals … future research should investigate how the strength of a family vision affects family business leaders’ willingness to trust nonfamily advisors who may not understand or appreciate the family’s vision. It may be that the strength of the family vision moderates the relationship between firm age and wealth emphasis.”

The authors also propose that there are a number of specific areas of research to pursue in relation to the evaluation of business advisors, including: the cost of advice; the amount of interaction time required; the advisor’s communication style, the nature of the task for which advice is being sought, and the degree to which the business leader is comfortable having their norms challenged. These are all valid and relevant avenues of research which would serve the field well, and be useful for the field of family enterprise advising moving forward.

Article citation:
Perry, J. T., Ring, J. K., & Broberg, J. C. (2015). Which type of advisors do family businesses trust most? An exploratory application of socioemotional selectivity theory. Family Business Review, 28(3), 211-226. Original DOI: 10.1177/0894486514538652.


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