Why Do Family Firms Strive for Nonfinancial Goals? An Organizational Identity Perspective:

TL;DR: In this article, the authors develop an organizational identity-based rationale for why family firms strive for non-financial goals. And they suggest that the concern for corporate reputation leads the family to pursue nonfinancial goals to the benefit of nonfamily stakeholders.

Abstract: This paper develops an organizational identity-based rationale for why family firms strive for nonfinancial goals. We show that the visibility of the family in the firm, the transgenerational sustainability intentions of the family, and the capability of the firm for self-enhancement of the family positively influence the importance of identity fit between family and firm as well as the family's concern for corporate reputation. We suggest that the concern for corporate reputation leads the family to pursue nonfinancial goals to the benefit of nonfamily stakeholders. We also discuss reinforcing feedback loops in these processes.

Summary

Heterogeneity in the Importance of Family-to-Firm Identity Fit and Corporate Reputation Concern

• In contrast to the above arguments that controlling families will consistently seek harmony in family and firm identity (O’Reilly, Chatman, & Caldwell, 1991), recent 5May, 2011 research drawing on organizational identity theory suggests that family firms may widely differ in the degree to which they strive for identity fit between family and firm (Zellweger et al., 2010).
• In line with Scott and Lane (2000), the authors argue that depending on the extent to which the family seeks identity fit between family and firm, the controlling family will be concerned with the firm’s reputation.
• Within organizational identity theory, it is argued that when people are visibly associated with an organization, they are more frequently reminded of their organizational membership.
• In the eyes of self-affirmation theory, people exhibit constant explanations and rationalizations of themselves.
• In sum, the authors suggest that transgenerational sustainability intentions are a way for the family to maintain a stable self-concept over time, which ultimately raises the family’s concern for corporate reputation.

Stakeholder Satisfaction Activity and Pursuit of Nonfinancial Goals

• In light of the concerns for corporate reputation in many family firms, it is essential to consider how organizational reputation forms.
• One may contend that non-stakeholders and ex-stakeholders may also contribute to the formation of reputation.
• Fombrun and Shanley (1990, p. 234) stress the importance of how different goals satisfy different stakeholders with the following: “A theoretical articulation of reputation as a construct should anticipate the multiple economic and non-economic criteria different constituents are likely to use in assessing firms.”.
• This perspective is in line with recent discussions in organizational identity theory highlighting that identity-dependent organizational behavior should lead to nonfinancial goals which satisfy stakeholders .
• In light of their conceptual model, the authors reason that since nonfamily employees are critical for establishing a favorable corporate reputation and ultimately the family’s self-worth, family firms should be particularly inclined to satisfy nonfamily employee demands through the pursuit of responsible work practices.

Closing the Loop: Strengthening the Antecedents of Family-to-Firm Identity Fit

• Research on self-affirmation and self-justification processes (Staw & Ross, 1980; Steele, 1988) shows that people attempt to preserve a sense of integrity and self-worth by positively evaluating the groups with which one identifies (Dutton et al., 1994).
• This belief creates a reinforcing effect in which the antecedents of organizational reputation concerns, including self-continuity, self-distinctiveness, and self-enhancement are strengthened (Dutton et al.).
• This positive belief in the output of the family firm is likely to increase the antecedents, which lead to corporate reputation concerns.
• The family will see the firm as a means to create a more positive evaluation of self and thus increase self-esteem (Brockner, 1988).
• The pursuit of nonfamily-centered nonfinancial goals will strengthen the (1) self-enhancement capability of the firm, (2) the visibility of the family in the firm, and (3) the transgenerational sustainability intentions of the family, also known as Proposition 5.

Discussion

• The authors paper focuses on the question of why family firms strive for nonfinancial goals.
• While the moral, personal goal-based, and even financial motivations of nonfinancial goals on the individual and societal level are well documented in previous research (Brickson, 2007; Margolis & Walsh, 2003), there is little theory explaining why family firms should be particularly inclined to strive for nonfinancial goals.
• Building on organizational identity theory (Albert & Whetten, 1985), the authors show that a family firm’s pursuit of nonfinancial goals can be explained by the varying degrees to which a controlling family strives for a fit between family and organizational identity.
• The authors inclusion of multiple levels of corporate performance is in line with a growing stream of research that considers micro and macro goals and incorporates multiple levels of analysis (Brush, Manolova, & Edelman, 2008; Davidsson & Wiklund, 2001; Venkatraman & Ramanujam, 1986).
• The socioemotional wealth literature argues that nonfinancial goals shape the reference point from which owners frame business decisions.

Limitations

• The authors acknowledge limitations of their conceptual contributions.
• Many organizational activities are routinized and constrained by mimetic, coercive, and normative forces in the institutional field (DiMaggio & Powell, 1983).
• It is at this margin that the authors see the family’s scope of action based on the importance of identity fit between family and firm.
• Impression management may help in acquiring resources, since the legitimacy and reputation that are built up over time may be helpful in brand building, allowing the firm to charge price premiums, attracting better applicants, or even having access to lower-cost financing (Anderson, Mansi, & Reeb, 2003; Fombrun & Shanley, 1990).
• This limitation should in the end increase the parsimony of their model (Whetten, 1989).

Guidance for Future Research

• One way to build upon their research is to empirically test its validity.
• Those represent rich areas for future research.
• It is reasonable to assume that even the most nonfinancially motivated family firm will strive to survive as an organization and must perform a kind of “hedonic calculus” (Brickson, 2007) to evaluate the potential harm incurred in the process of focusing on these goals, for example, in terms of hindering growth and access to financial capital.
• Indeed, nonfinancial goal considerations are mostly associated with inefficient behavior (e.g., excessive risk taking, biased information processing, unwillingness to grow, inertia; Berrone et al., 2010; Dutton et al., 1994).
• In either case, the authors believe that a further exploration of the credibility of identity claims has intriguing implications for a deeper understanding of family firms.

Implications for Practice

• In a practical sense, their model provides a tool to reflect on the sources, degrees, and consequences of identity overlap between family and firm.
• This is relevant since nonfinancial goals often conflict with financial goals (Berrone et al., 2010).
• In a recent study, Shepherd and Haynie (2009) discuss how identity conflicts between family and business can be resolved by building a “family-business meta-identity.”.
• The drivers of corporate reputation concern therefore should be understood and managed lest they stand in the way of important identity-affecting events such as rapid growth and decline, mergers, acquisitions, or retrenchment that may be needed for the long-term prosperity of the firm and the family (Albert & Whetten, 1985; Dutton et al., 1994).

Conclusion

• In sum, their paper offers a new conceptual framework that proposes antecedents to nonfinancial goals in family firms.
• In light of the prominence of this observation, the economic relevance of this type of firm and the assumed importance of pursuing mainly financial goals for long-term corporate success, providing a rationale for why family firms are striving for nonfinancial goals is critical, both for theory and practice.

Full text

etap_466 1..20
Why Do Family
Firms Strive for
Nonfinancial Goals? An
Organizational Identity
Perspective
Thomas M. Zellweger
Robert S. Nason
Mattias Nordqvist
Candida G. Brush
This paper develops an organizational identity-based rationale for why family firms strive for
nonfinancial goals. We show that the visibility of the family in the firm, the transgenerational
sustainability intentions of the family, and the capability of the firm for self-enhancement of
the family positively influence the importance of identity fit between family and firm as well
as the family’s concern for corporate reputation. We suggest that the concern for corporate
reputation leads the family to pursue nonfinancial goals to the benefit of nonfamily stake-
holders. We also discuss reinforcing feedback loops in these processes.
Introduction
The existence of nonfinancial goals related to business activity is acknowledged in
various streams of literature. One context where nonfinancial goals are particularly
prominent is that of the family firm. A priority for nonfinancial goals is one of the
fundamental premises in family business literature (e.g., Chua, Chrisman, & Sharma,
1999; Zellweger & Astrachan, 2008). Family firms pursue nonfinancial goals when
powerful controlling families seek particularistic family-centered goals (Carney, 2005),
or when controlling families seek to preserve the socioemotional wealth they derive
from being in control (Berrone, Cruz, Gomez-Mejia, & Larraza Kintana, 2010). The
socioemotional wealth literature touches upon an identity-based rationale for the rel-
evance of nonfinancial goals when it defines socioemotional wealth as the “nonfinancial
aspects of the firm that meet the family’s affective needs, such as identity, the ability to
exercise family influence, and the perpetuation of the family dynasty” (Gomez-Mejia,
Haynes, Nunez-Nickel, Jacobson, & Moyano-Fuentes, 2007). However, this literature
Please send correspondence to: Thomas M. Zellweger, tel.: +41 71 224 71 00; e-mail: thomas.zellweger@
unisg.ch, to Robert S. Nason at rnason@babson.edu, Mattias Nordqvist at mattias.nordqvist@ihh.hj.se, and to
Candida G. Brush at cbrush@babson.edu.
P
T
E
&
1042-2587
© 2011 Baylor University
1May, 2011
DOI: 10.1111/j.1540-6520.2011.00466.x

does not further engage with organizational identity theory, which is surprising given
the relevance of this theory to explain nonfinancially motivated behavior of family firms
(Dyer & Whetten, 2006).
Therefore, we utilize organizational identity theory to explore why family firms
strive for nonfinancial goals (Albert & Whetten, 1985; Dutton, Dukerich, & Harquail,
1994; Scott & Lane, 2000). Applied to family firms, this theory maintains that an
identity fit between family and firm is important to many controlling families, given
the close and often inseparable ties between the dominant family coalition and the
firm (e.g., Dyer & Whetten, 2006; Sundaramurthy & Kreiner, 2008). We explain how
and why family-centered goals can lead a family firm to pursue other-centered nonfi-
nancial goals (i.e., goals that provide benefits to stakeholders outside the family).
It is the family-centered importance of identity fit between family and firm, and the
resulting concern for corporate reputation, which motivates concerns for the satisfaction
of nonfamily stakeholders. This satisfaction of nonfamily stakeholders is achieved
through the pursuit of nonfinancial goals. Even though all types of firms exhibit other-
centered nonfinancial goals, only family firms exhibit family-centered nonfinancial
goals, which are often tied to the family’s identity. In addition, unique factors such as
the visibility of the family in the firm, the transgenerational sustainability intentions of
the family, and the capability of the firm for self-enhancement of the family often create
particularly strong incentives to pursue nonfinancial goals. In this way, our paper
explores the unique origins of nonfinancial goals within family firms. We acknowledge
the heterogeneity among family firms, and argue that controlling families are not iden-
tical in their concern for corporate reputation, which helps explain why they vary in
their pursuit of nonfinancial goals (Pearson, Carr, & Shaw, 2008; Westhead & Cowling,
1997).
We contribute to the literature in four ways. First, by establishing linkages among
family identity, organizational identity, organizational reputation, and nonfinancial orga-
nizational goals, we shed new light on how identity and reputation concerns in family
firms produce incentives to pursue nonfinancial goals that satisfy the needs of nonfamily
stakeholders. This contributes to a better understanding of the cross-level exploration
of goals in family businesses. Second, building on recent works on the heterogeneity of
family firm identity (Zellweger, Eddleston, & Kellermanns, 2010), we suggest that
family-organization identity significantly differs among family firms. We reach beyond
Dyer and Whetten’s (2006) premise about the homogenous identity concerns among
family firms. Third, our paper adds to the theory of socioemotional wealth in family
firms (Astrachan & Jaskiewicz, 2008; Berrone et al., 2010; Gomez-Mejia et al., 2007;
Zellweger & Astrachan, 2008). These studies propose a prospect theory argument for
why family firms are inclined to strive for socioemotional and nonfinancial goals. We
build on these writings and suggest that a socioemotional reference point builds as a
consequence of organizational identity considerations. Finally, our paper adds to orga-
nizational identity theory by addressing recent arguments that identity concerns may not
adhere to traditional economic-based explanations of managerial behavior (Livengood
& Reger, 2010).
Our paper is organized as follows. First, we define nonfinancial goals and introduce
organizational identity theory. Second, we explore factors that influence family–firm
identity fit and corresponding concern for corporate reputation. We demonstrate how
nonfamily stakeholder satisfaction is driven by the family’s concern for corporate repu-
tation and is accomplished through the pursuit of nonfinancial goals. Third, we discuss
reinforcing feedback loops in these processes. We conclude by discussing the contribu-
tions, limitations, and implications for research and practice.
2 ENTREPRENEURSHIP THEORY and PRACTICE

Nonfinancial Goals in Family Firms: Review and Clarification
The relevance of nonfinancial goals is one of the most important premises of family
business research. Westhead and Cowling (1997) argue that it is unrealistic to assume that
profit maximization is the prime objective of a family business. We define a family firm as
one controlled by a family through involvement in management and ownership, coupled
with a transgenerational vision for the firm (Chua et al., 1999; Habbershon & Pistrui,
2002). Well-documented nonfinancial goals on the family level include: autonomy and
control (Olson et al., 2003; Ward, 1997), family cohesiveness, supportiveness, and loyalty
(Sorenson, 1999); harmony, belonging, and trustful relations (Sharma & Manikutty,
2005); pride (Zellweger & Nason, 2008) as well as family name recognition, respect,
status, and goodwill in the community (Sorenson; Tagiuri & Davis, 1992). Gomez-Mejia
et al. (2007, p. 106) recently showed that socioemotional wealth, defined as the “nonfi-
nancial aspects of the firm that meet the family’s affective needs, such as identity, the
ability to exercise family influence, and the perpetuation of the family dynasty” is an
important factor in managerial decisions like risk taking. Zellweger and Astrachan (2008)
suggest that these socioemotional wealth considerations are reflected in the family’s
perceived sales price of the firm.
The above studies describe the phenomenon and the subdimensions of nonfinancial
goals at the family level. However, a compelling theory-based rationale explaining the
relationship between nonfinancial goals at the family level and nonfinancial goals at
the firm level is lacking. Two considerations are central for our answer to this question:
first, the dominant family coalition is most often able to exert strong control in its firm,
through ownership and management and often influence on organizational culture
(Klein, Astrachan, & Smyrnios, 2005). In turn, the controlling family will be inclined
to see the firm as “their” firm, providing the family with the opportunity to seek
their particularistic, individualistic family-centered goals (Carney, 2005; Vos & Forlong,
1996). This perspective may entail greater variability in the exercise of authority and
related goals, including nonfinancial ones. However, while this first argument captures
the wide degree of discretion of the family in terms of setting goals at the firm level,
a second argument is needed to explain why the controlling family is motivated to
pursue nonfinancial goals at the firm level to the benefit of nonfamily stakeholders.
Such an argument must explain why controlling families differ from other powerful
owners and managers who exploit their dominant positions to their sole private financial
benefit.
As a second consideration, we suggest that the difference among controlling actors is
tied to the level of identity overlap between the actor and the firm. Family owner-
managers are thought to often tie their family’s identity to the identity of the firm (Dyer
& Whetten, 2006). Identity overlaps are heightened because of inextricable ties between
the family group and the firm. This creates a level of affect and concern for the firm and
its perception in the public that is absent among other controlling actors (i.e., nonfamily
managers, nonfamily owners). In fact, the strong mutual dependence between family and
firm identities create incentives to ensure that the firm is seen in a favorable light by
nonfamily stakeholders. An unfavorable corporate reputation spills over to the reputation
of the family reducing the likelihood of financially oriented self-centered behavior by the
family. Controlling families will strive for a particular set of goals that help them to create
a favorable perception of the firm in the public and thus enjoy the benefit of the positive
spillover of public perception on the family. Recent literature suggests that combining
organizational identity and a goal set, which satisfies a wide set of stakeholders, often
occurs through the pursuit of nonfinancial goals (Brickson, 2007).
3May, 2011

Our rationale does not imply that controlling families are self-sacrificial in their goals
or that they pay exclusive attention to identity fit and/or ignore financial issues. In fact,
striving to protect the dominant coalition’s own identity claims can be seen as a highly
self-serving behavior. Our contention is that when the controlling family emphasizes a
family–firm identity fit, it will exhibit a heightened concern for corporate reputation and
the firm will have a strong inclination to pursue nonfinancial goals to the benefit of
nonfamily stakeholders, ultimately protecting the family’s own identity claims.
Based on these considerations, we define nonfinancial goals as those which do not
have a direct tangible monetary value, and occur at the family and firm level. At the family
level, these goals include: pride in the firm, family status in the community, entrepreneur-
ial tradition, social support among friends, harmony among family members (Chrisman,
Chua, Pearson, & Barnett, 2010). Furthermore, family-centered nonfinancial goals shape
the identity claims of the family (Berrone et al., 2010). At the firm level, nonfinancial
goals include: responsible employee practices, trusting relationships with suppliers and
customers, environmental actions, corporate social performance, support for local com-
munity, and the like (Gomez-Mejia et al., 2007; Zellweger & Nason, 2008). These firm-
level nonfinancial goals are centered on nonfamily stakeholders and are meant to be
illustrative rather than exhaustive. We argue that depending on the family’s preference for
firm identity fit and the corresponding family concern for corporate reputation, it will
pursue firm-level nonfinancial goals to the benefit of nonfamily stakeholders.
Accordingly, our definition of nonfinancial goals converges with Chua and Schnabel’s
(1986) definition of nonpecuniary goals and Berrone et al.’s (2010) definition of socio-
emotional wealth. Berrone et al. see the pursuit of nonfinancial goals by the firm as
intrinsically motivated, anchored by family owners whose identity is tied to the organi-
zation and becoming an end in itself. However, our rationale for nonfinancial goals in
family firms diverges from the private benefits of control literature, which stresses the
financial benefits for agents tied to a controlling position in an organization (e.g., Dyck &
Zingales, 2004). In contrast, we focus on the nonfinancial goals of owners. We build on
Dyer and Whetten (2006) and the concept of corporate social goal of families in two ways.
First, we acknowledge the relevance of nonfinancial goals across levels of analysis (Klein,
Dansereau, & Hall, 1994). Making the distinction between family-centered and other-
centered nonfinancial goals tied to the family’s identity allows for a cross-level perspec-
tive. It is the desire to achieve family-centered nonfinancial goals (i.e., being proud of the
firm) that drives the desire for a favorable firm reputation (and hence a favorable family
reputation) and leads to the intention to pursue other-centered nonfinancial goals at the
firm level. Second, we contend that families vary in the importance they attribute to a fit
between family and firm identity. Some families strive for a strong fit between the two
identities, while other families seek to maintain separate family and firm identities.
The next section of our paper explores this heterogeneity in the importance of
family-to-firm identity fit as sought by the family, starting with an exploration of family
identity and organizational identity.
Family Identity, Firm Identity, and Corporate Reputation Concern
Family Identity and Organizational Identity
Family identity can be defined as the meaning that family members attach to the
family for internal processes of self-verification (Weigert & Hastings, 1977) and the
central statement of character of the family in the social context, where the social context
reflects back on the construction of identity (Stryker & Burke, 2000). According to
4 ENTREPRENEURSHIP THEORY and PRACTICE

social psychology research, family identity includes specific types of interpersonal rela-
tionships and internalized sets of behavioral expectations associated with these relation-
ships (Shepherd & Haynie, 2009; Stryker, 1968; Stryker & Burke). It is suggested that
family internal relationships generally require intense and frequent face-to-face interac-
tion, positive affection, mutual support, and altruistic feelings among family members
(Schulze, Lubatkin, & Dino, 2003; Weigert & Hastings). Such family-internal processes
of self-verification are determined by cues from the broader context, which set an “iden-
tity standard” as to the behaviors appropriate for a family (Burke, 2003). These family
identity standards may vary with the social context and across cultures (Choi, Nisbett,
& Smith, 1997).
Nevertheless, a family identity is always distinctive to a certain degree, given the
family’s unique history, which is commonly memorized through a family’s archival
function (Weigert & Hastings, 1977). Identity-forging elements of family history include
memories of happy and sad times, anecdotes, artifacts from earlier times, signs of achieve-
ments, or inherited possessions. Through the retention of these symbols, a family serves
as a unique biographical museum for its members. A family is a “world” of its own, in
which selves emerge, act, and acquire a stable sense of identity built by the particular
common history. In other words, in the identity of a controlling family, the firm may play
a relevant role. This is the case when the families’ goals reflect the family’s identity and
are strongly associated with the firm (e.g., pride in the firm, tradition as entrepreneurs,
status as employer in the community, harmony among family members involved in the
firm; Berrone et al., 2010).
Organizational identity encompasses the core values and beliefs of an organization
that its members deem to be the most central, distinctive, and enduring (Albert & Whetten,
1985). Through communication, behavior, and symbolism, an organization reveals its
identity to stakeholders (Leuthesser & Kohli, 1997; Van Riel & Balmer, 1997). Organi-
zational identity reflects members’ consensual view of “who we are as an organization”
and “what we do as a collective” (Nag, Corley, & Gioia, 2007). In this way, it serves both
sense-making and sense-giving functions, providing meaning to members’ organizational
experiences as well as a guide for how organizational members should behave and how
other organizations should relate to them (Ravasi & Schultz, 2006; Whetten, Felin, &
King, 2009). The continuity and coherence of organizational identity enables organiza-
tional members “to satisfy their inherent needs to be the same yesterday, today and
tomorrow and to be unique actors or entities” (Whetten & Mackey, 2002, p. 396).
In sum, in both cases, identity serves as a statement of central character (Albert &
Whetten, 1985). Family business research argues that family and organizational identity
tend to be overlapping creating a mutually shared understanding of “who we are” and
“what we do” in “our family’s business.” It is suggested that the overlap of people who are
members of both the family and the firm, the integral role of the business for the family’s
biography, and inability of the family to leave the firm entirely should lead to a congruence
of identities (Dyer & Whetten, 2006). This implies that the family and the firm should be
harmonious in terms of goals, values, beliefs, norms, interaction styles, and time horizons
(Ashforth, 2001). It follows that controlling families should display a heightened concern
for a strong identity fit between family and organization.
Heterogeneity in the Importance of Family-to-Firm Identity Fit and
Corporate Reputation Concern
In contrast to the above arguments that controlling families will consistently seek
harmony in family and firm identity (O’Reilly, Chatman, & Caldwell, 1991), recent
5May, 2011

Frequently asked questions

Q1. What is the strongest mediator for social psychological phenomena?

Steele (1988) suggests that self-continuity and defense against threats to the self are among the strongest mediators for social psychological phenomena. 

Q2. What is the importance of social dimension in organizational identity theory?

the addition of a social dimension to the discussion of nonfinancial goals in family firms is important for organizational identity theory itself. 

Q3. What are the common nonfinancial goal considerations?

nonfinancial goal considerations are mostly associated with inefficient behavior (e.g., excessive risk taking, biased information processing, unwillingness to grow, inertia; Berrone et al., 2010; Dutton et al., 1994). 

Q4. What is the effect of giving up the identity component of a family firm?

In case the firm was intended to be passed on to a next family generation, and the firm was an essential component of a family’s identity, giving up this identity component can be harmful and induces a time-consuming reconstruction of an alternative identity. 

Q5. What is the reason why a family firm is more likely to make its affiliation more visible?

As the family firm is engaged in nonfamily-centered nonfinancial activity that is positively perceived by stakeholders, the family is more likely to make their affiliation with the firm more visible. 

Q6. What is the antecedent to increasing identification with a firm?

Following organizational identity theory (Albert & Whetten, 1985), self-enhancement is another antecedent to increasing identification with a firm. 

Q7. How do the authors flesh out the relationship between identity fit and related reputation concerns?

the authors flesh out how identity fit and related reputation concerns are tied to nonfinancial goals, namely through stakeholder satisfaction activity. 

Q8. What is the motivation on the side of the family to pursue nonfinancial goals?

While Carney adds an essential element to the understanding of nonfinancial performance goals, the authors show that it is actually the motivation on the side of the family not to exploit the family’s power in a self-oriented financial way but to strive for nonfamily-centered nonfinancial goals, driven by family-centered identity and reputation concerns. 

Q9. What is the reason for the strong mutual dependence between family and firm identities?

In fact, the strong mutual dependence between family and firm identities create incentives to ensure that the firm is seen in a favorable light by nonfamily stakeholders. 

Q10. What is the main argument for socioemotional wealth?

Even though this core argument is solidly rooted in prospect theory and the behavioral agency model (Tversky & Kahneman, 1991; Wiseman & Gomez-Mejia, 1998), the socioemotional wealth literature partly falls short of clarifying the drivers that lead to such a reference point, beyond the mental accounting of nonfinancial benefits and costs.