Charity begins at home

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Charity begins at home

What is a family firm and what difference does it make when a firm considers itself familial? These questions have dogged researchers for quite some time. As Handler (1989) notes, the first question has been answered in a variety of ways that include understanding the family firm in terms of interdependence (Beckhard & Dyer, 1983), generational transfer (Ward, 1987), and ownership/management (Lansberg, Perrow, & Rogolsky, 1988). Recently, Chua, Sharma, and Chrisman (1996) provided their answer to the second question by defining the family firm differently, focusing instead on the behavioral distinctiveness associated with intraorganizational familial presence. This article builds on the Chua et al. (1996) effort and posits that one distinctive behavioral element of family firms is extraorganizational and, more specifically, social in nature. The underlying logic for this proposition is straightforward: Insofar as the family firm is not simply an economic entity but also a family endeavor, it seeks to realize more than simply economic objectives. With the presence of family, the firm becomes a more socially conscious entity that seeks to include social considerations in its operating agenda. Why might familial presence be linked with increased social involvement? Building on Preston and Post’s (1975) logic of business and society as interpenetrating phenomena, we propose that the entwined nature of family in firm creates a fundamentally different raison d’être. Families operate on the basis of different criteria than firms. As Beutler, Burr, Bahr, and Herrin (1989) propose, the family realm “ . . . differs fundamentally from nonfamily realms or spheres . . . it has different ethics, different processes, and different dynamics . . . [and therefore,] important and powerful effects on many aspects of the human experience” (p. 806). In our article, we explore the possibility of these effects. We begin by reviewing recent work on corporate philanthropy (Burlingame & Young, 1996) and family firms (Upton & Heck, 1997) and propose that a lacuna currently exists between the two, that is, how intrafirm familial presence moderates the enterprise’s philanthropic involvement. We then review and apply a definitional typology of family firms (Litz, 1995) to a sample of community hardware stores. We examine the philanthropic and community involvement of the four types of firms posited by the typology. Finally, we conclude by reflecting on what the findings suggest for both corporate philanthropy and family-firm research.

Burlingame and Young’s (1996) recent edited volume provides a thorough and insightful survey of corporate philanthropy research. Contributors document the vast and diverse range of subtopics falling under the umbrella of corporate philanthropy. Whereas Yankey (1996) addresses the relationship between corporations and nonprofit sector, Korngold and Voudouris (1996) focus on the nature of corporate community-involvement strategies in volunteerism. Burlingame and Frishkoff (1996) consider the relationship between firm size and philanthropic endeavor, whereas Lewin and Sabater (1996) explore the relationship between philanthropy and business performance. On a more synoptic level, Wood and Jones (1996) consider how corporate philanthropy fits into the broader context of corporate social performance, and Buhl (1996) and Himmelstein (1996) consider the ethical and power-related dimensions of corporate philanthropy, respectively. Finally, the volume includes two discussions of challenges for future philanthropic research: Smith’s (1996) appeal concerning the data-related limitations of philanthropic research and Young and Burlingame’s (1996) offering of a new paradigm for corporate philanthropy. This volume makes an important contribution insofar as it synthesizes current work on the topic of corporate philanthropy. It also outlines the range of underlying motives for charitable behavior. According to Burlingame and Young (1996), there are four prime impetuses: The neoclassical/corporate productivity model, where philanthropy is part of a broader objective of profit maximization; the ethical/altruistic model, where the corporation’s executives are seen as societal leaders who allocate surpluses to contribute social value to society; the political model, where philanthropic involvements are seen as ways to preempt government interference in the free enterprise system; and the stakeholder model, where corporations seek a workable compromise between divergent, and often conflicting, stakeholder interests.

Although this volume adds much to current understanding, there is an apparent conceptual omission. The gap concerns the extent to which family involvement in firm ownership and management might influence philanthropic behavior. The gap is concisely documented in the chapter by Wood and Jones (1996). They note the range of predictors considered in charitable contribution research. Although factors as diverse as industry type, firm size, profitability, and regulatory context have been considered, the role of family has been overlooked. However, as Upton and Heck (1997) note in their recent survey of family business research, such an omission is neither novel nor unexpected. Family firm research has only emerged in its own right in the past decade; until then, it existed largely in the shadow of research on entrepreneurship (Litz, 1997). Regarding philanthropic behavior, however, intrafirm family presence may be an important predictor. Upton and Heck (1997) note such a possibility, citing the works of Astrachan (1988), Covin (1994), Davis and Stern (1980), and Harris, Martinez, and Ward (1994). The logic of family presence being linked to philanthropic behavior is straightforward; insofar as family and firm are two distinct entities with two distinct agenda for operation and performance assessment, we expect to observe differences in those firms with greater family presence compared to those with less or none. As an institution, family is characterized by a more holistic orientation toward the person (Beutler et al., 1989), compared to business, where a more exclusive focus on profit maximization often prevails (Preston & Post, 1975). Anecdotal support for this assertion is found in several family-dominated firms. Levi Strauss & Co. have been extensively involved in a variety of philanthropic efforts including education, health, and the environment (Cray, 1978; Stehle, 1998); distilling giant Seagram Company Ltd. has long-standing involvement in the Canadian Jewish Congress (Marrus, 1991; Newman, 1978); and the Rockefeller family has maintained a diverse set of social involvements including work on population and public service (Harr & Johnson, 1991). Particularly convincing, however, is Meek, Woodworth, and Dyer’s (1988) case study of one midsized corporation that underwent transformation on its sale from a privately held, family-dominated firm to one division of a publicly traded, professionally managed conglomerate. The assimilation into the nonfamilial context was aptly summarized by one company employee: “Workers used to be part of a family. Now you are treated as cogs in the corporate machine, which is reflected in the management philosophy that you have to get mean with these [production workers] and force them to work” (Meek et al., 1988, p. 50). Part of the rationale for these dispositions and involvements may no doubt be attributable to one or more of the core impetuses noted by Burlingame and Young (1996). For example, one biographer attributed John D. Rockefeller Jr.’s philanthropic involvement to a family-based ethical/altruistic motive. In his study of the younger Rockefeller, Fosdick (as cited by Harr & Johnson, 1991) described him as possessing “a conscience that made a virtue of work and its rewards, but likewise saddled the successful with an awesome compulsion to regard his wealth as a trust, to redistribute one’s gain for the benefit of many men” (pp. 205-206). More recently, observers of Levi Strauss & Co.’s dilemmas in deciding whether to source from the People’s Republic of China attribute the company’s eventual decision to preempt the Chinese option to prudent stakeholder management (Katz & Paine, 1994).

However, another motive may also be at least partly responsible: philanthropy within a family-dominated organization provides the controlling family with opportunity to make its mark on the firm as more than just a business. Boulding’s (1970) conceptualization of economic, political, and social systems helps in understanding this difference; whereas economic systems are driven by motives of exchange and political systems are fueled by possibility of threat, social systems are fundamentally different. They are more akin to love systems, which Boulding defines as: . . . those in which the individual comes to identify his own desires with those of another. These are important in the explanation of the institution of the family, of the church , and of nationalism, of the phenomena of philanthropy and self-sacrifice, and of all those areas of life where we do not merely exchange or threaten but in which we identify. (author’s italics, pp. 108-109) Building on this logic of identification, we advance our study’s central hypothesis: Hypothesis 1: Corporate philanthropic involvement will be positively related with intrafirm family presence.

One of the recurrent challenges in family firm research centers on the operationalization of the family firm construct is: How are family and firm to be defined? As noted earlier by Handler (1989) and more recently by Wortman (1995), definitional approaches abound, which is typical of an emerging context (Porter, 1980). One definitional approach that combines a variety of dimensions, including ownership, management, and intent, has been offered by Litz (1995). By combining work on the separation of ownership and management (Berle & Means, 1934) with research on the intended and realized aspects of strategy formation (Mintzberg & Waters, 1985), Litz conceptualized a four-cell typology of different types of family firms (Figure 1). Four types of firms emanate from the integration. One type is the potential family firm, where there is unrealized intent to include family in ownership and management of the firm. Another is the family firm, characterized by realized intent to include family in ownership and management. In the potential nonfamily firm, the family is involved in both management and ownership but there is no intent to continue such involvement, and finally, in the nonfamily firm, there is neither intent nor realization of family presence in ownership or management.

Practical examples of each type of firm are easily located. The potential family business is exemplified by the entrepreneur who starts up an enterprise and hopes that someday his or her children (or other family members) will take over the reins of the business. Following this line of logic, the family firm could conceivably be the same firm with increased involvement of the children (or other family members) in the firm’s ownership and management, along with the intention to keep the firm “family.” This last point is an important one, however. To the extent that such intent is waning or absent, the firm becomes a potential nonfamily firm, where family members place little importance on keeping the enterprise a family concern. The final cell, the nonfamily firm, is the end result of this erosion of intent. Although it is most readily exemplified by the large publicly traded corporation, it is also present in smaller concerns. The typology adds to extant organizational theory by recognizing the possibility of familial influence along the two dimensions of structure and intent. Conceptually, it recognizes a continuum of family involvement, rather than simply limiting categorization to an overly coarse dichotomization of the firm as either familial or nonfamilial in nature. Although the four-cell framework remains vulnerable to overly coarse categorization, it nonetheless provides a useful starting point for empirical inquiry. In the next section, we explore the practical implications of the typology on community involvement of over 300 small U.S. retail hardware establishments.

The retail hardware industry was selected for this study for three reasons: first, because of the fragmented nature of the industry (Miller, 1992); second, because of the concomitant high level of family representation in fragmented contexts (Ehrenfeld, 1995); and third, because of a demonstrated tendency for small firms to get involved in the local community context (Thompson, Smith, & Hood, 1993).

During 1995, we contacted 1,169 small hardware stores in the major U.S. metropolitan areas of Atlanta, Miami, Long Island, San Diego, Chicago, Minneapolis–St. Paul, and Kansas City. After participating in a short qualifying interview, the store’s managers were asked to complete a mail-administered survey. The instrument, designed in accordance with Dillman’s (1978) Total Design Method, was first pretested and validated on a sample of Manitoba hardware stores.

Of the total sample of 1,169 stores, 340 (29.1%) were inaccessible (they had either ceased operations or were unavailable to answer the initial telephone call); 62 (5.3%) were incorrectly categorized as retail hardware stores; and 110 (9.4%) were in operation and correctly classified as retail hardware stores but nonetheless refused to participate in the study. Of the 677 that were correctly classified as retail hardware stores, 370 (31.65% of the total sample) agreed to cooperate but failed to follow through by returning their completed survey, whereas 307 (26.3% of the total sample) followed through by sending back their completed surveys. In terms of the total sample, the 307 respondents represented a response rate of 26.3%. Out of the 787 stores eligible to participate in the study, the 307 represented a 39.0% participation rate; out of the 677 stores that agreed to participate in the study, the 307 represented a response rate of 45.3%.

Our dependent variable was operationalized in terms of five different areas of community involvement: Business (e.g., the local Chamber of Commerce, etc.); Charitable (e.g., the local United Way, etc.); Service (e.g., Kiwanis, Rotary, Lions, etc.); youth (e.g., community clubs, sports teams, etc.); and Religious (e.g., in-kind donations to church auctions, etc.). (See Appendix for a complete set of all survey items used in this study.) Although we recognize that many researchers interpret the construct of philanthropy more narrowly (involvement in a local Chamber of Commerce is not typically considered a philanthropic involvement per se), we nonetheless see a broader operationalization as relevant, given the more localized focus of the resource-constrained small firm (Welsh & White, 1981).

For each item, respondents were asked to assess their store’s involvement on a scale from 1 (no or low involvement) to 5 (high involvement). We also generated a measure of total community involvement by totaling the scores across all five dimensions (Cronbach’s alpha of the five items was calculated at .76). Summary statistics on the five areas of involvement, as well as their summed total and number of hours spent each week on community involvements, are presented in Table 2. As is apparent, all five activities received similar levels of support. Service involvements received the lowest mean score, tailing Charitable by .26, whereas Youth involvements received the highest average involvement score.

Building on the typology’s three-step distinction, we operationalized the family firm at three levels (see Figure 2), which we appropriately term coarse-, medium-, and fine-grained. Coarse-grained: Family firms versus nonfamily firms. A logical starting point was to simply ask, “Is your firm a family firm?” Respondents were required to choose between “yes” and “no.” Of the 305 firms in our study, 42 (13.8%) identified themselves as nonfamily firms, whereas 263 (86.2%) identified themselves as family firms, thus suggesting that this variable was an important descriptor for a majority of firms in our sample.

Fine-grained: Family firms versus potential nonfamily firms. A final set of questions was asked of all firms concerning their future. Building on Danco’s (1980, 1982) assertion that the life of a typical family firm is just over 20 years, we asked each respondent to identify who they expected to be owning the firm in the equivalent of an organizational half-life, that is, 10 years. Options that were offered to respondents included the present owner, family members related to the present owner, or someone not related to the present owner. In consideration of the possibility of closure, a final option, “the store will have ceased operations” was also included. Although this set of choices is admittedly a less than perfect descriptor of future intent, it nonetheless provides some indication of likely future direction, and in particular, indicates whether the present owner expects to keep the firm in the family. Paralleling the ownership question was a similar item on management. As Table 5 and 6 report, more than 70% and 65%, respectively, expect to maintain intrafamily control of ownership and management (i.e., the sum of “present owner/manager” plus “family members related to the current owner/manager”).

Given the categorical nature of our conceptual framework, we carried out an analysis of variance across the four cells on each of the five dimensions of community involvement, as well as the summed measure across all five dimensions. To account for the possibility of sales volume (measured by 1995 sales), sales velocity (measured by 1995 sales per square foot), and sales profitability (measured by profit margin on 1995 sales) confounding communityinvolvement scores, we performed ANOVAs across the four cells for each of these performance measures. No statistically significant differences were observed. As Table 7 reports, intercell differences in community involvement were not statistically significant at p ≤ .05. Nonetheless, a noteworthy pattern was evident. Consistent with this study’s hypothesis, family firms were more involved in their community than nonfamily firms. As the first two columns of Table 7 report, family firms reported more activity in all five areas of community involvement. 142 Litz, Stewart Table 6. Summary Statistics: Who Do You Expect to Manage This Store 10 Years From Now? Cumulative Cumulative Response Frequency Frequency % % The present manager 145 145 48.3 48.3 Family members related to the current manager 52 197 17.3 65.6 Someone not related to the present manager 78 275 26.0 91.6 The store will have ceased operations 25 300 8.33 100.0 Downloaded from

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