Corporate governance and management accounting in family firms: does generation matter?

• Author: Duller, Christine

1. INTRODUCTION

   Family firms have been assuming an increasingly important role in the economies of countries worldwide. Family businesses dominate the economic landscape of most nations in terms of sheer number, gross business revenues, and jobs and are an important engine of growth, prosperity, and welfare (Heck and Trent, 1999; Astrachan and Shanker, 2003; Sirmon et al., 2008). Due to the lack of clear separation between family and business (Stafford et al., 1999) family firms are said to differ from non-family firms in various ways with respect to human resources, social capital, survivability, financing and governance structures (Morris et al., 1997; Habbershon and Williams, 1999; Sirmon and Hitt, 2003; Chrisman et al., 2006).

   Nevertheless the relevance of family firms has been neglected by research (Dyer, 2003). Apart from a few exceptions the family firm has been scarcely researched (Lansberg et al. 1988; Astrachan, 2003). Only in 1988, with the launching of the Family Business Review, the first journal devoted to the academic study of family firms, did this topic establish itself as a field of research (Hoy, 2003; Sharma, 2004, Chrisman et al., 2006, Heck et al., 2008; Debicki et al. 2009); only then did one begin to take a closer look at the distinguishing features and the different dynamics of family firms as well as their influence on the organization, financing and leadership structure. Despite the growing body of literature with a theoretical or empirical focus on various management issues in family firms, there remain various aspects of this subject which have been scarcely researched--if at all. These aspects include the relationship between family control and corporate governance structures, controlling management accounting in family firms, and the influence of generation on these governance mechanisms and management accounting practices.

   While experts have agreed that family firms differ from non-family companies in their corporate governance structure (Witt, 2008), family control and how it relates to internal control or governance mechanisms has been represented with relative paucity in the literature (Bartholomeusz and Tanewski, 2006). The organization of a family firm's management board and supervisory board and the extent to which they are composed of external managers can be regarded as examples of such governance mechanisms. The role of supervisory and advisory boards in family firms is a notable example of subject-matter that has been--with a few exceptions aside (Klein, 2005; Blumentritt, 2006; van den Heuvel et al., 2006)--scarcely researched (Koeberle-Schmid et al., 2009).

   A vast majority of "research in family firms has been directed toward the individual or group levels with only scant recent interest in the organizational level" (Sharma, 2004, p. 22). Thus, topics such as how a family firm approaches standard business functions such as marketing strategies, human resource practices and interorganizational relationships remain largely ignored and unstudied (Sharma, 2004). This is also true of accounting; there is still a significant lack of research on current accounting practices, above all management accounting practices, that family firms use (Salvato and Moores, 2010). While generally neglected, the only studies focusing on management accounting mainly investigate selected areas or instruments of management accounting (e.g. Moores and Mula, 2000, who study management control systems; Upton et al., 2001, who investigate strategic and business planning practices of fast growing family firms, or Schachner et al., 2006, who examine the firm's performance management system).

   The majority of the studies conducted on family firms concentrate on the differences between family and non-family firms (Sharma, 2004; Chrisman et al., 2005b; Chrisman et al., 2007). Nevertheless one can assume that family firms are not homogeneous (Corbetta and Salvato, 2004a; Stockmans et al., 2010), but rather they differ in various aspects such as the degree of family involvement, ownership dispersion, management structures, and generation. While a few of these aspects have already been researched in comparative studies of different types of family firms (consult Chrisman et al., 2007 for an overview of such studies), the influence of the incumbent generation of managers has been scarcely researched. Indeed, the transition of family firms from one generation to the next, and in particular the transition from the founder to the subsequent generation (Astrachan, 2003), has been identified as a salient field of research (Chrisman et al., 2003; Debicki et al., 2009). Extant literature concentrates here on the individual characteristics of the founder/transferor and those of the successor as well as the succession process and critical factors and contextual variables in this process (cf. Sharma, 2004 and the sources mentioned there). However, although the questions concerning the extent to which both the governance structures and the family influence affect the management board and the supervisory board and how this differs from generation to generation are generally regarded as relevant questions, they have nonetheless received little attention. This is also true concerning the question of whether the organization of the management accounting department and the management accounting tools differ across generations (Morris et al., 1997; Bammens et al., 2008; Hack, 2009; Salvato and Moores, 2010). Moreover it is unclear whether there exist significant differences between first-generation family firms and subsequent generation family firms and whether these differences can be found only between the first and second generation or whether subsequent generations also differ among themselves.

   The few existing investigations into generational issues of family firms have mainly been conceptual or otherwise qualitative (Beckhard and Dyer, 1983; Schein, 1983), or a tangential empirical analysis within a larger family business study (Westhead and Howorth, 2006; Kellermanns et al., 2008); they have also been mainly limited to the USA or the UK, have been restricted to selected areas (Davis and Harveston, 1999; Van den Berghe and Carchon, 2002; Suare and Santana-Martin, 2004; Voordeckers et al., 2007; Bammens et al., 2008), and have rarely focused on providing an explicit and exhaustive differentiation among generations (Lussier and Sonfield, 2010). Having based our work on a survey of Austrian family firms, our aim is to close this apparent research gap in order to provide a better understanding of generational similarities and differences as well as the influence of generational issues on governance structures and management accounting.

   The nearest approximation to our research can be found in Lussier and Sonfield's cross-cultural comparison (2010) of first-, second-, and third-generation family businesses. However, while their research did make a distinction between generations, it only focuses on family firms in the first, second or third generation. In this respect our study has adopted a broader scope by analyzing family firms led by generations later than the third. In order to tackle the scarcely researched topic of the role of supervisory boards and the role of management accounting in family firms, this study will examine in detail whether and to what extent the incumbent generation influences the institutionalization, the organization and the composition of supervisory boards as well as its influence on management accounting. Here as well earlier studies are quite vague, and those with a specific focus on the generational aspect do not deal with the sophistication of financial management instruments or strategic planning. Thus, this study makes several contributions to family firm research by investigating the generational issue in more detail as well as placing a particular focus on management accounting.

   The remainder of the paper is organized as follows. In the second part an overview is provided of the definition of family firm as well as various theoretical perspectives of family firms. Based on these theories, hypotheses are formulated with regard to the development of governance structures and management accounting among different generations. Part three describes the sample and methodologies used. Next, the results of our empirical study are presented and discussed. The paper concludes with a summary of our findings as well as a recommendation concerning additional research that would merit further investigation.

2. THEORETICAL BACKGROUND

   2.1. Definition of family firm

   With respect to the delineation and definition of the term 'family firm', there is no general consensus in the academic literature (Chrisman et al., 2005a; Ibrahim et al., 2008). On the one hand, one can find more or less narrowly-defined classifications that revolve around the degree of family involvement in the firm in terms of ownership, control, management roles, and transgenerational succession (Chua et al., 1999; Astrachan and Shanker, 2003) or those based on the specific characteristics of family firms (Davis and Tagiuri, 1989; Habbershon et al., 2003). A categorization widely referred to in international empirical research and considered (tentatively) valid (Cliff and Jennigs, 2005; Holt et al., 2010) is the F-PEC scale developed by Astrachan, Klein, and Smyrnios (2002) which consists of the three subscales of power (the family's involvement in the firm), experience (the amount of experience the family has in the business), and culture (the extent to which the firm's culture is a unique culture).

   On the other hand, definitions based on self-perception are becoming quite common and frequently used in empirical research. According to these definitions the classification of firms into family businesses or non-family firms depends in part, or even entirely, on the judgement of the person being interviewed (Westhead and...