Crisis management in family firms: the combinations of family business involvement and directive leadership that influence business and social performance

Abstract

Purpose This research aims to understand how qualitative, non-market family business characteristics influence business performance in the context of a disruptive environmental change created by Covid-19 global economy lockdowns in the period of Spring/Fall 2020. Drawing on the Resource-Based-View (RBV), the authors postulate the influence of unique family firm characteristics on performance outcomes. Design/methodology/approach The authors analyze a sample of 2,344 family businesses from around the globe using cluster analysis, and identify three different types of family businesses whose characteristics are linked to differences in financial performance (change in revenues during Covid lockdowns) and social performance (change in employment in the same time). The survey data was collected between June 2020 and October 2020 and it captured family businesses of all sizes and from a vast range of industry sectors around the globe. The comparison between clusters of the baseline parameters was performed using one-way analysis of variance (ANOVA) for parametric variables. By conducting between-profile analysis of covariance (ANCOVA), the authors tested for differences in the dependent variables (i.e. change in revenues and change in employment) between the clusters, using cluster membership as the independent variable. Findings Considering the characteristics of family firms in terms of the level of involvement of family members (Herrero and Hughes 2019), and directive leadership capturing the top-down recovery effort adapted from Krause et al. (2022) and Faraj and Xiao (2006), the authors identify four different types of family firms that appeared during the initial phase of the pandemic. The findings suggest that different contexts lead to disparate outcomes in terms of financial performance, as measured by revenue changes, as well as social performance and measured by employment change. Results show that a directive leader may contribute to decreased revenue and employment losses, while family involvement in the absence of a directive leader may exacerbate these negative outcomes. Practical implications Specifying qualitative, non-market characteristics of family firms that likely contribute to more favorable business outcomes in an event of a significant environmental disruption is likely to be instructive to family firm practitioners, as well as owners and managers of family enterprises. Originality/value While research on organizational resilience in the context of family enterprises has gained momentum, the influence of organizational factors on family firm performance outcomes during a crisis is still an area requiring detailed investigation. Global economy disruptions created by Covid-19 pandemic provided for a unique context to investigate these effects. In addition to studying financial performance outcomes, this research also investigates changes in employment, an important measure of social performance of a firm. This research provides evidence that a directive leader can have a positive effect on the financial performance and employment retention of a firm, while family involvement, especially in the absence of a directive leader, might have a negative effect.