Some family firms exhibit a preference for formal corporate social responsibility (CSR) strategies while others tend towards informal ones. But why?
Researchers tend to use family involvement in the firm, such as governance, ownership, and management, as their litmus test for the importance family firms place on non-financial value. The latter encompasses family control, family identity, binding social ties, family emotional attachment, and preservation of the familyâs dynasty. Researchers also tend to neglect the areas of family ties and emotional attachment.
IMDâs Alfredo De Massis, together with Josh Wei-Jun and Luis Gomez-Mejia, saw some shortcomings in this and explored a wide spectrum of family businesses through the portal of family firmsâ strategic motivation to formalize their CSR strategy (or not). They found that the same non-financial value dimensions may lead to polar strategic choices, and investigated why.
In the case of CSR, these vastly opposing strategic choices were visible in whether or not a firm systematically and openly communicated its CSR activities to external stakeholders. De Massis and colleagues analyzed data from 186 Italian family firms, presenting the results in a paper âExamining Heterogeneous Configurations of Socioemotional Wealth in Family Firms Through the Formalization of Corporate Social Responsibility Strategy,â published by Family Business Review.
It has long been known that family businesses donât just take financial value into account but also earmark non-financial value when making strategic decisions. Conversely, non-family firms focus on maximizing the firmâs financial value.
Family business owners are, in fact, so in favor of non-financial value that their strategic decisions are driven by it. This helps us to understand why family firms diversify less, are more inclined toward mergers, acquire more similar firms, adopt fewer innovations, invest less in R&D, pollute less, experience more disruptive managerial succession, avoid underpricing for initial public offerings, are less likely to engage in earnings management, and establish more transparent accounting procedures. It also helps explain why they realize greater returns from risk-taking under financial distress.
As is clear, non-financial value is an umbrella term encompassing many areas. De Massis and his colleagues therefore set about using family firmsâ efforts to have a corporate social responsibility (CSR) strategy as their litmus paper, finding that a âconfigurational approachâ â that is, the use of several of the aforementioned dimensions to non-financial value â enriches our understanding of just how different family businesses are in terms of their strategic choices.