Leif Melin, Jönköping International Business School

This project is based on the fact that family ownership is a prevailing form of ownership in most western countries. The overall purpose of this project was to increase the academic knowledge about the type of ownership that families hold in family controlled businesses. Three main research questions were defined as the core of this project:

1. Characterize the logic of ownership that the family controlled firm represents and analyze the consequences of such logic for the strategic development of the family business
2. Analyze how financial and management accounting practices affect structures and processes of accountability in the family controlled firm
3. Analyze the role of emotions in ownership and governance processes in the family controlled firm.

The principal researchers in this project has been Ethel Brundin, Emilia Florin-Samuelsson and Leif Melin. We build our report on these three research questions as a point of departure.

1. Characterize the logic of ownership that the family controlled firm represents and analyze the consequences of such logic for the strategic development of the family business
This overall purpose has been addressed by conducting 20 case studies with in-depth and reflective interviews with family business owners of. With the ambition to get variety among the selected and studied family controlled business, the 20 cases studied differ along the following dimensions:

- Size, both large and medium-sized business firms have been studied
- Industries, the business firms represent several different industrial sectors
- Companies both listed on the stock exchange and privately-hold.
- In different stages of the generation life cycle of family firms, from 1st to 6th generation
- Firms characterized as entrepreneurial and growth oriented firms and firms more focused on stability and tradition
- Firms which present themselves as family businesses and firms whose owners and management seldom choose to call attention to their family ownership
- Firms whose operations could be described as relatively local as well as business firms operating globally

The research has resulted in the conceptualization of a Family Ownership Logic. This logic is characterized by: active and visible ownership; stability in ownership and power; an industrial and long-term focus; multiple ownership goals; skepticism towards capital markets; flexibility in governance structures; and a strong identification with the firm; all leading to an overarching emotional bonding to the family firm. It is concluded that in order to better understand the family ownership logic we need to turn to alternative views on corporate governance and ownership. The empirical observations are related to theories on psychological ownership and suggest a number of implications for future research. The Family Ownership Logic has been described and elaborated upon in a set of papers that have been presented at several international conferences, including a Best Paper Award at the FBN-Ifera Academic Forum at the International Family Business Network 16th World Conference in Brussles, 2005.

A second stage within this part of the project has been to test the Family Ownership Logic on a larger population of family controlled firms. In this quantitative study we also extended family businesses to include closely held and owner-managed companies where the owners not always regarded themselves as family business owners. We wanted to investigate whether such logic was representative also for this group of companies. A questionnaire was constructed using a Likkert scale with ten response alternatives. The respondents were chosen from a population of owners of 1 398 closely-held companies that all participated in a study on ownership structure and succession conducted by the project leader in 2004 (see Nutek B 2004:06). All companies (manufacturing and service companies) were limited companies with at least 5 employees all owner-controlled by either an individual person (31%) or two/several family members (42%) or a small group of non-family partners (23%). From the original population we randomly selected 500 companies. These companies were approached with a mail questionnaire during April 2006. The result, based on a high response rate, show that the family ownership logic is predominant regarding most of its seven dimensions also within a larger population than the original 20 family-controlled firms studied more in depth. Tentative results have been presented at international conferences, and a paper summarizing the results will be submitted to an international journal during 2008.

The results from both the case studies and the survey are also responding to the claim among family business researchers to distinguish between the general influence of concentrated ownership and the particular influence of family involvement. Our empirical findings show the problem in separating these two issues as they in family controlled firms are intimately intertwined.

The conceptualization of the predominant logic of family ownership is the most important result of this project. Despite the heterogeneity of the large family business population these findings show that there are some basic and common characteristics of family controlled firms that distinguish this form of organization from other business firms with other ownership structures. These findings have both theoretical and practical implications of importance.

2. Analyze how financial and management accounting practices affect structures and processes of accountability in the family controlled firm
Based on this overall research question we have addressed more detailed research questions such as who is accounting to whom over what, and what counts as acceptable performance by owners and managers in family-controlled firms. Within the field of family business research the literature has highlighted different problems of family control in relation to businesses development. Family controlled businesses have for example been described as in need of professionalization, as possibly defaulting to emotional rather than rational contractual decision making, as being inward oriented, as characterized by destructive nepotism, and as operating according to a "peculiar financial logic". The study of our 20 cases gives empirical accounts that both support and contradict such negative characteristics. On the other hand it has also been shown that family controlled businesses frequently outperform other firms. Studies have shown that family ownership have important consequences for business firms' strategic development and long-term survival. Despite these finding there are few studies within the management accounting field that take family ownership and its possible consequences into account. Drawing on our interviews in the 20 family-controlled firms and in-depth case studies in two of them, we have identified a number of issues of relevance for management accounting practices in family business settings. A paper will be submitted to an international journal during 2008 where the focus is on the accountability of the family owners depending on their role within their family firm's governance structure (i.e. owner, board member, CEO, manager).

A specific question that combines the first and the second themes of the project is how the family ownership logic influences the practice of merger and acquisitions that is an issue of growing concern in many industries dominated by family ownership. Still there are few empirical studies of mergers and acquisitions involving family firms. Therefore our study can contribute in the forming of a research agenda for this topic. Our empirical findings demonstrate that the family ownership logic has concrete consequences for the acquisition process, implying that the textbook recipes for mergers and acquisitions are not followed. For example are the former owners in the acquired firms shown a large amount of respect instead of being asked to leave the scene after the acquisition.

3. Analyze the role of emotions in ownership and governance processes in the family controlled firm.
Within this part of the project the following more detailed research questions were in focus:
What emotions are communicated among family members - active or not active - in the family business in relation to governance and ownership processes? How do these emotions matter to the ownership process and strategy formation in the family controlled firm?

These questions were mainly analyzed through in depth case studies of two (of the 20) family businesses where the owners initially participated in the first case interview round. We have found that owners' commitment in strategic decisions is emotion based to a large degree. More generally the results show that the family business with its special core characteristics creates special conditions for a dialogue that is beneficial to the firm's strategic development over generations. With the genuine relationships that are strong between family members/owners, emotions are less threatening and can contribute in an active way to progress in strategic dialogues. Such dialogue takes place both on traditional formal arenas (as the board meeting) and on different informal arenas, but in an increasing number of family-controlled firms the family council has become established as the family's main arena for their strategic dialogue. Norms of openness, honesty and informality characterize the dialogue on this arena, even if some family members also say that what they talk about and conclude in this arena are not always put in practice in subsequent actions. To some degree such dialogues are also hampered by the tight family ties and conflict laden but are in the long run regarded as beneficial.

Within this project area we have also elaborated on the emotional perspective in relation to the practice of strategy in family controlled and/or owner-managed firms, resulting in several publications.

Furthermore, within the project but beyond the three areas reported here we have been analyzing two other issues: (a) ownership in relation to corporate social responsibility, and (b) family ownership as it is presented in movies.

Dissemination of results to practitioners

The results deriving from all three research areas have been incorporated in a set of succession seminars, arranged by Nutek/Almi as well as by Jönköping International Business School (JIBS). A booklet (published by Nutek) was written with a focus on the emotional side of succession in family-owned businesses where the results of this study were incorporated. Furthermore we have organized executive education in the form of in-depth conversation sessions with business families on their ownership and succession issues.

Through this project Jönköping International Business School (JIBS) has strengthened its position in the growing international research society that focuses on family ownership and family businesses. The start of the Center for Family Enterprise and Ownership in 2006 builds on this and other projects at JIBS. This project has contributed with new knowledge to the theoretical fields that we primarily relate to the phenomenon of family business ownership, i.e. governing, strategizing, accountability and emotions, knowledge that also will influence both study programs and executive education. Furthermore, the project has made visible and formulated relevant issues regarding the situation of owner families and family businesses as an essential part of economic life in Sweden and many other countries.

Spinn-offs - research questions for future research

We have material to do more analyses, and plan to write a book on "The emotional side of family businesses". We also see possibilities for a more critical reading resulting in an article on the theme of the "The unchallenged family saga". This project has also given input, together with other colleagues' ideas, to an application for a research program on Meanings and Impact of Private Ownership (of business firms). Two topics in the proposed program are directly generated from this project:
- The social organizing of ownership that includes the following questions: What dynamics of social processes emerge in the practice of private (family) ownership? What conflicting values are predominant in the practice of private (family) ownership? How do individuals form new roles and how is the transition between roles made when ownership is transferred over generations? What are the consequences of emotional bonding for private ownership?
- Self-narratives of ownership, focusing on narratives, images and stories of ownership and on the influence of owners/ownership on corporate identity.

Another point of departure of importance for future research is the gender aspect, where both the essential and often subordinated role of women in family controlled firms should be elucidated.