Family Member Employment and the Formation of Family Business Networks (2005)

ABSTRACT In this conceptual paper, we develop the idea of familial doctrine to explain the association between family member employment and the evolution of family business networks. Familial doctrine represents the norms and values of a family that ensures the cohesion and integrity of family life. The impact of familial doctrines is most likely to affect the decision-making of family businesses when the biological growth limits of the human family surface as a key factor for future business growth. We focus our analysis on two events: (1) when the growth of the family unit produces more qualified adults than the positions available within the family firm; (2) when the family businesses outgrow the biological family's capability to produce enough family members to fill the new vacancies created through business growth. INTRODUCTION The evolution of the family business network, or FBN, has received increasing interests from social scientists (e.g., Carney & Gedajlovic, 2002a; Carney & Gedajlovic, 2002b; Redding, 1990). An FBN is a group of business organizations that consists of firms owned and controlled by family members, and may include firms controlled by non-family members but with close associations with a family firm. Such organizations are prevalent in Korean chaebols and the ethnic Overseas Chinese business networks (Kienzle & Shadur, 1997). The growing interest in FBN research is fueled by the economic significance of FBNs in the emerging economies of East Asia and the theoretical contributions that such research can make to the study of business growth and success. Since family business is the predominant form of business organization in the early stage of economic development (Bhattacharya & Ravikumar, 2001), research on the evolution of East Asian FBNs will help researchers and practitioners better understand the dynamics of FBN growth in the emerging economies. Family member employment is a prevailing practice in family firms (Ward, 1987). In this paper, we develop the idea of the familial doctrine to explain the association between family member employment and the evolution of family businesses. Familial doctrine refers to the norms and values of a family that ensures the cohesion and integrity of family life. The impact of familial doctrines is most likely to affect the decision-making of family businesses when the biological limits of human family growth surface as a key determinant of future business growth. Examples of human biological traits include the death of family leaders and succession (Davis, 1968), and the aging of business leaderships (Churchill & Hatten, 1987). In the management literature, the structural characteristic that differentiates a family business from a non-family one is the coupling of ownership and managerial interests. Chandler's (1962) historical study shows that many family businesses in the U.S. eventually decouple the ownership-management link and become non-family businesses. On the other hand, family businesses in the East Asian emerging economies have evolved into family business networks after decades, if not centuries, of operations (Carney & Gedajlovic, 2002a). Recent analyses on the East Asian FBN suggest that the cultural heritage of entrepreneurs (Hall & Xu, 1990; Kao, 1993; Redding, 1990) and institutional environment (Carney & Gedajlovic, 2002a) are responsible for shaping the evolutionary trajectory of family businesses in Southeast Asia and contribute to the prevalence of the FBN. They grow by establishing partnerships to reduce transaction costs (Hennart, 1988) and gain legitimacy (Podolny & Page, 1998). However, a network structure is not the only evolutionary path followed by family businesses. Family business owners may elect to sell substantial shares of the business to outsiders or to pursue vertical integration rather than form an arms-length network. Thus, investigating the factors contributing to the variation in family business evolution will enhance our knowledge of the family business. …