Explaining PerformanceDifferences BetweenFamily Firms WithFamily and NonfamilyCEOs: It’s the Natureof the Tie to the FamilyThat Counts!Peter JaskiewiczAndrew A. Luchak

Drawing on regulatory focus theory, we advance a microtheory for Naldi, Cennamo,Corbetta, and Gómez-Mejía’s findings suggesting that family ties as well as the careeraspirations that derive from them trigger relatively higher prevention and relatively lowerpromotion goal orientations of family when compared with nonfamily chief executive officers(CEOs). Our conceptualization offers an alternative theory for why family firms with familyCEOs outperform those with nonfamily CEOs in contexts such as industrial districts whereconservation strategies are more valuable, but underperform in contexts such as publiclylisted firms where market-driven strategies are more valuable. Our commentary highlightsthe need for future research to examine variance in the self-regulatory mindsets of familyand nonfamily CEOs, and to link these differences to firm strategies and performance.

Naldi, Cennamo, Corbetta, and Gómez-Mejía (2013) compare family firms led byfamily and nonfamily chief executive officers (CEOs) across two business contexts:industrial districts and publicly listed firms. Based on the pattern of Italian industry wheretheir data are drawn, Naldi et al. treat these two contexts as mutually exclusive, anassumption we also make in our commentary. They find that family firms with familyCEOs outperform those with nonfamily CEOs in the context of industrial districts butunderperform them in the context of publicly listed firms. Naldi et al. develop a contin-gency perspective to explain these differences and furnish evidence consistent with thisconceptualization. Specifically, they find that the preservation of socioemotional wealth(SEW) through a family CEO is an asset to family firm performance in the context ofindustrial districts where tacit rules and adherence to social norms are valued practices,

Please send correspondence to: Peter Jaskiewicz, tel.: 514-848-2424; e-mail: pjaskiew@jmsb.concordia.ca.

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but a liability among publicly listed family firms where formality, transparency, andmaximizing shareholder value are more important.

We find Naldi et al.’s (2013) findings intriguing and owing to the central role of theCEO in preserving a family firm’s SEW, develop a microtheory of their findings that treatsthe CEO with a greater level of agency in the choice of competitive strategy in a particularbusiness context. In developing our theory, we draw on regulatory focus theory (RFT) tohighlight that the different nature of the tie between a firm-controlling family and a familyand nonfamily CEO will lead to the adoption of predictably different goal orientations bythe CEO, which can be expected to lead to different organizational strategies that fit somebusiness contexts better than others.

Theoretical Development

RFTRFT is grounded in the hedonistic principle that individuals strive for positive out-

comes and wish to avoid negative outcomes. The theory proposes that human behaviorand decision making are governed by two distinct goal orientations: a prevention focusand a promotion focus (Higgins, 1997, 2005). Although individuals may have a disposi-tion favoring one goal orientation, particular situations can similarly trigger or makesalient one, the other, or both since the two foci are theoretically independent, a pointborne out by meta-analytic evidence (Gorman et al., 2012). A prevention focus is madesalient by situations emphasizing a concern for security, attention to losses, and thefulfillment of duties and responsibilities. In such situations, individuals will be motivatedto value continuity and preservation of the status quo while avoiding failure and loss at anycost. In contrast, a promotion focus is triggered by situations emphasizing opportunities,attention to gains, and the attainment of ideals and aspirations. In such situations, indi-viduals will be motivated to pursue ambitious goals while not worrying much about thepotential downside risks (Brockner, Higgins, & Low, 2004; Higgins, 2005).

So far, insights from prospect theory have commonly been drawn upon to studySEW in family firms (e.g., Gómez-Mejía, Haynes, Nunez-Nickel, Jacobson, &Moyano-Fuentes, 2007). Prospect theory proposes that a loss will reduce individual utilitymore than a gain will increase it (Kahneman & Tversky, 1979), which helps explain whyfamily firms often act to preserve their SEW (e.g., Berrone, Cruz, Gómez-Mejía, &Larraza-Kintana, 2010). RFT adds nuance to this perspective by conceptualizing concernsover losses as a salient motivation underlying the prevention focus that is separate andapart from a salient motivation to pursue gains through a promotion focus (Idson,Liberman, & Higgins, 2000). For instance, relatively more prevention-focused CEOswill be motivated to pursue conservational strategies to protect and maintain existingresources, unlike more promotion-focused CEOs who would view these same resources asa base upon which to leverage further gains. While we do not expect dispositionaldifferences in the regulatory foci of family and nonfamily CEOs, we do expect them toadopt different goal orientations due to the triggering effect of the presence or absenceof a family tie with the firm-controlling family.

Family Ties as a Stronger Trigger for the Prevention FocusAmong Family CEOs

Families preserve SEW by, for example, passing the firm to the next generation andcreating job opportunities for family members (Gómez-Mejía et al., 2007; Naldi et al.,

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2013). Because of their goal to preserve SEW, family firms have been hypothesized andfound to underperform in relation to their nonfamily peers (e.g., Berrone et al., 2010). Byengaging in a finer grained analysis, Naldi et al. propose that the preservation of SEWenhances the performance of family firms in one particular context but lowers it in another.Our theory provides an alternative microexplanation for Naldi et al.’s results. We suggestthat the family tie to a family CEO, unlike the more professional tie to a nonfamily CEO,will trigger more strongly the prevention focus of family relative to nonfamily CEOs,leading to different organizational strategies that result in firm performance differencesacross business contexts.

The effect of family ties is suggested by Higgins and colleagues (e.g., Cesario &Higgins, 2008) who show in experiments that in addition to the triggering effect of amessage’s content (e.g., asking people to think about their duties and obligations willtrigger a prevention focus while asking them to think about their aspirations and ambitiousgoals will trigger a promotion focus), verbal and nonverbal cues from a message’s sourcelike a family member can have a potent effect on a person’s regulatory foci (Cesario,Higgins, & Scholer, 2008).

A large body of sociological and psychological research emphasizes that individualstarget family rather than nonfamily members when they are in need and require support(e.g., Jung, 1990; Litwak & Szelenyi, 1969; Rook, 1987; Stewart, 2003). Family membersare targeted in such situations because the family tie makes individuals feel obliged to andreminded of their family duty to help out fellow family members. These arguments and theempirical research supporting them suggest that family ties unlike less affective profes-sional ties make salient an individual’s prevention foci that family business research byLe Breton-Miller, Miller, and Lester (2011) suggest generalizes to the case of familyCEOs. Specifically, these authors show that the more a firm and its managers are embed-ded within a family, the more they will pursue “family preferences for avoiding risk,maintaining control, and obtaining regular income and security [which] are said to resultin strategies of conservatism and sparse investment” (Le Breton-Miller et al., p. 704).Taken together, these arguments align with our theory that the family tie will trigger astronger prevention focus among family relative to nonfamily CEOs.

Proposition 1: Compared with the professional tie with a nonfamily CEO, the familytie between a firm-controlling family and a family CEO will more strongly trigger aprevention focus.

Career Aspirations as a Weaker Trigger for the Promotion Focus AmongFamily CEOs

We have argued that a family tie between the firm-controlling family and a familyCEO can make the prevention focus of family relative to nonfamily CEOs more salient.We propose now that a family tie will also make the promotion focus of family relative tononfamily CEOs less salient. We suggest that this latter effect may operate through thedifferent career aspirations of family and nonfamily CEOs. Due to the prevalent family tie,the family CEO’s career aspirations are focused inside the family firm where the preser-vation of SEW includes among other things perpetuating the family dynasty (Naldi et al.,2013), limiting career aspirations outside of the family firm. In contrast, the careeraspirations of the nonfamily CEO who has a more professional tie with the family firmare more likely to include the external executive labor market. Since this market is morecompetitive, it is more likely to value financial rather than nonfinancial (e.g., SEW)performance, prompting the nonfamily CEO to emphasize performance-maximizing

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strategies that are more likely achieved through a promotion focus. This focus will beparticularly well suited to publicly listed firms where firm performance requirements arehigh and the achievement of such requirements improves career opportunities in theexternal labor market (Bebchuk & Fried, 2006).

Proposition 2: Compared with the externally focused career aspirations of anonfamily CEO, the internally focused career aspirations of a family CEO will moreweakly trigger a promotion focus.

Implications of a Stronger Prevention Focus Among Family VersusNonfamily CEOs

We have theorized that family ties and the different career aspirations that stem fromthem will lead to different goal orientations between family and nonfamily CEOs. Thesedifferences will motivate different strategies and lead to different outcomes among familyfirms with family and nonfamily CEOs. Consistent with Le Breton-Miller et al. (2011)discussed above, more prevention-focused family CEOs will be motivated to pursueconservation strategies, which in the context of industrial districts lead to the preservationof the institutionalized and informal ways of doing business that are valuable to firmperformance. Although nonfamily CEOs are similarly obliged to pursue such demandssince the family is their employer, family demands will induce a weaker prevention focusin nonfamily CEOs because of their nonfamily origin. As a result, nonfamily CEOs willhave a less strongly triggered prevention focus that makes them pursue fewer conservationstrategies, which is a liability to firm performance in an industrial district when comparedwith family CEOs who thrive in this business context.

Proposition 3: The relatively stronger triggering of a prevention focus of a familyversus a nonfamily CEO motivates the former to pursue more conservation strategiesthat are valuable to firm performance in the context of an industrial district.

Implications of a Weaker Promotion Focus Among Family VersusNonfamily CEOs

Due to greater oversight and transparency, publicly listed family firms are regularlyfaced with market demands to maximize firm performance. The relatively weaker trig-gering of the promotion focus of family relative to nonfamily CEOs, however, will leadto a lower motivation to pursue the performance-maximizing strategies that align withsuch demands. Since such strategies, however, would be valuable to firm performance incontexts such as publicly listed firms, where the firm is not bound to institutionalized andinformal ways of doing business, family firms with relatively more promotion-focusednonfamily CEOs should perform better than firms with relatively more prevention-focused family CEOs.

Proposition 4: The relatively weaker triggering of a promotion focus of a familyversus a nonfamily CEO motivates the former to pursue fewer market-driven strategiesthat would be valuable to firm performance in the context of a publicly listed firm.

The Choice of CEOs in Family FirmsIn the context of industrial districts, the family firm should be more inclined to attract

and retain a family CEO whose family tie to and career aspirations within the family will

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trigger a relatively stronger prevention and weaker promotion focus, respectively. Thisleads the family CEO to embrace more conservational strategies that yield performancesuperiorities in this business context. In contrast, a nonfamily CEO’s relatively weakerprevention and stronger promotion focus would lead to the adoption of more market-driven strategies that are less likely to benefit firms that are geographically and historicallybound to institutionalized and informal ways of doing business, resulting in lower per-formance relative to family CEOs. In publicly listed family firms, however, market-drivenstrategies are more valuable as firms are not limited to traditional ways of doing businessto be successful. Publicly listed family firms should therefore attract and retain nonfamilyCEOs whose professional tie and externally oriented career aspirations encourage theadoption of a promotion focus, an orientation better suited to the competitive marketdemands that are common in such a context. Naldi et al.’s (2013) arguments as well as ourown suggest that family firms can be quite rational in their CEO hiring practices if theyfollow the edict that in industrial districts, taking care of family takes care of the businesswhereas in publicly listed firms, taking care of the business takes care of the family. In thelatter case, the family maintains firm ownership, a key requirement for continuous familyfirm control while a nonfamily CEO can generate the firm profits that allow family ownersto take care of the family.

Proposition 5: Family firms will prefer hiring family CEOs where conservation strat-egies are valuable to firm performance and nonfamily CEOs where market-drivenstrategies are valuable to firm performance.

Theoretical Differences in Explanation

Our commentary developed an alternative theory for Naldi et al.’s (2013) results thatoffers at least three contributions. First, using RFT, we ascribe a greater measure ofhuman agency to the family firm CEO. Specifically, whereas Naldi et al.’s contingencyperspective emphasizes the “fit” of the CEO with the requirements of the businesscontext, we emphasize the role of the CEO’s goal orientation as a key driver of theirchoice of different firm strategies suited to different business contexts. Our theory illu-minates how the nature of the tie (family versus professional) between the firm-controlling family and its CEO influences the CEO’s goal orientation, motivation,strategies, potential success, as well as the manner in which the family may choose topreserve its SEW.

Second, Naldi et al.’s (2013) study as well as most previous studies on SEW focusedon the organization level of analysis and drew on insights from prospect theory (e.g.,Gómez-Mejía et al., 2007). RFT complements this perspective on the micro level ofanalysis by showing that a prevention focus motivates the avoidance of losses while apromotion focus motivates striving for gains. We theorized that family ties trigger theregulatory foci of family relative to nonfamily CEOs differently. Prevalent family tiesmake duties and obligations toward family more salient, leading to the relatively strongertriggering of a prevention focus of family relative to nonfamily CEOs. Meanwhile, theexternally oriented career aspirations of nonfamily CEOs will increase the salience oftheir promotion focus relative to the more internally focused career aspirations of familyCEOs. The RFT perspective thus helps us to understand why family CEOs can havedifferent goal orientations from nonfamily CEOs.

Third, the different goal orientations of family and nonfamily CEOs help explaindifferences in hiring practices, firm strategies, and firm performance across business

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contexts. Families might prefer hiring family CEOs in industrial districts because a familyCEO’s goal orientations motivate to protect the institutionalized and informal ways ofdoing business through conservation strategies, which is valuable to the family and thefirm’s performance in this business context. Although conservation strategies have previ-ously been regarded skeptically due to their potentially adverse effects on firm perfor-mance (e.g., Gómez-Mejía et al., 2007; Miller, Le Breton-Miller, & Lester, 2011), Naldiet al.’s (2013) theory and results as well as our micro-level theory draw attention to thesuccess of this strategy in industrial districts. Since conservation strategies, however,might threaten the viability of the family firm in the context of publicly listed firms,families can resort to nonfamily CEOs in this business context. Although nonfamilyCEOs’ goal orientations might motivate strategic changes to enhance firm performance,the family maintains ownership control of the firm—which is an important family goal(Chrisman, Chua, Pearson, & Barnett, 2012)—and can use firm profits to nurture thefamily. The choice of a CEO might thus motivate the pursuit of different firm strategieswith different implications for the way of doing business and for business performance.

Future research should test and extend our theory. For instance, does the triggeringeffect of a family CEO’s prevention focus vary with the physical and psychologicalproximity of familial relations (Higgins & Silberman, 1998)? Similarly, it would beinteresting to analyze whether the triggering effect of a prevention focus of a family CEOis stronger in collectivistic cultures where family interact more regularly and intensely,and play a more pivotal societal role. Finally, future research might study if publicly listedfamily firms in industrial districts exist and to what extent firms in this context hire familyor nonfamily CEOs. Related to our own theory, we might also expect such CEOs todisplay relatively higher levels of both prevention and promotion focus, choosingto emphasize one, the other, or both depending on the context (Brockner et al., 2004). Toconclude, RFT is a powerful theory to enhance our understanding of individual goalorientations and motivations. We hope that our commentary will foster more research onthe micro level of analysis in family firms.

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Peter Jaskiewicz is an Associate Professor at the John Molson School of Business at Concordia University,1455 De Maisonneuve Blvd. W., Montreal, Quebec, H3G 1M8, Canada.

Andrew A. Luchak is an Associate Professor at the University of Alberta, School of Business, 3-23 BusinessBuilding, Edmonton, Alberta, Canada T6G 2R6.

We would like to thank Ian R. Gellatly, Tory E. Higgins, Trish P. Reay, two anonymous referees, and our actioneditor Jess Chua for their valuable comments and suggestions which helped us to improve the papersignificantly.

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