A Piece of the Pie? The Effects of Familial Control Enhancements on the Use of Broad‐Based Employee Ownership Programs in Family Firms

• DOI: http://doi.org/10.1002/hrm.21828
• Date: 01 September 2018
• Published date: 01 September 2018
• Author: Frank Mullins

SPECIAL ISSUE ARTICLE

A Piece of the Pie? The Effects of Familial Control

Enhancements on the Use of Broad-Based Employee

Ownership Programs in Family Firms

Frank Mullins

College of Business, University of Alabama in

Huntsville, AL 35899 USA

Correspondence

Frank Mullins, College of Business, University

of Alabama in Huntsville, 301 Sparkman Drive,

Huntsville, AL 35899 USA.

Email: frank.mullins@uah.edu

While family firms tend to be highly committed to their employees, scholars contend that

founding family owners are likely hesitant when it comes to sharing ownership broadly with

nonfamily employees. Taking a heterogeneous view of family firms, this study investigates the

implications of different familial control-enhancing mechanisms on the use of broad-based

employee ownership programs (BEOPs) among publicly-traded family firms. Based on a five-

year panel data set of S&P 500 family firms, the findings indicate that certain control-

enhancing mechanisms can cause family owners to frame their decision to use BEOPs differ-

ently. Essentially, family firms with family CEOs, regardless of whether the CEO is a founder or

descendant, have a decreased likelihood of using BEOPs in spite of the direct control that fam-

ily owners have over the firm’s operations. Conversely, when family owners hold dual-class

shares, which enhance shareholder voting power, family firms are more likely to use BEOPs.

Furthermore, the likelihood of family firms with family CEOs using BEOPs increases when the

family holds dual-class shares. Moreover, there is no significant difference between founder

and descendant CEOs, as both are less resistant to using BEOPs when a dual-class share struc-

ture is in place. These findings have implications for HR practitioners working in family firms

given the influence that family owners can have on the firm’s HR activities, namely BEOPs.

KEYWORDS

compensation and benefits, corporate governance, employee ownership, family firms

Prevalent within the United States and around the world, family

firms, or firms dominated by the founding family, in comparison to

nonfamily firms, demonstrate a greater commitment to their employ-

ees (e.g., Lee, 2006; Mullins, Brandes, & Dharwadkar, 2016; Stavrou,

Kassinis, & Filotheou, 2007) and use human resource management

(HRM) practices to create a sustainable competitive advantage

through them (Hoopes & Miller, 2006; Le Breton-Miller & Miller,

2006). Broad-based employee ownership programs (BEOPs) can sup-

port the long-term viability of the firm by aligning the employees’

interests with those of the owners (Pfeffer, 1995). According to prior

HRM studies, BEOPs are generally associated with a number of posi-

tive firm outcomes such as increased worker productivity, enhanced

financial performance, and higher firm survival rates (e.g., Blair,

Kruse, & Blasi, 2000; Carberry, 2011; Doucouliagos, 1995; Kruse,

2002). Yet, scholars posit that family firms are reluctant to share

ownership with nonfamily employees due to concerns regarding own-

ership dilution (Cruz, Firfiray, & Gomez-Mejia, 2011). This is surpris-

ing given that family firms view the employees as being integral to

their long-term viability (Hoopes & Miller, 2006; Le Breton-Miller &

Miller, 2006), and BEOPs, if used, can play an instrumental role.

Recent studies have indicated that family firms are more hetero-

geneous rather than homogeneous when it comes to making strategic

decisions that involve trade-offs such as investing in research and

development (R&D) (Chrisman & Patel, 2012; Gomez-Mejia et al.,

2013). Likewise, family firms may behave in a heterogeneous manner

given the potential benefits and drawbacks associated with BEOPs.

However, much of the variation among family firms can be deter-

mined by the context in which these strategic decisions are made

(e.g., Gomez-Mejia et al., 2013). In publicly-traded firms, founding

family owners (henceforth family owners) often seek to maintain their

DOI: 10.1002/hrm.21828

Hum Resour Manage. 2018;57:979–992. wileyonlinelibrary.com/journal/hrm © 2017 Wiley Periodicals, Inc. 979