The Contribution of Leadership Style and Practices to Family and Business Success.(contains bibliography)(Industry Overview)

Based on Dyer's (1986) study of family business cultures, this study derives five approaches to leadership: participative, autocratic, laissez-faire/mission, expert, and referent. It argues that participative, expert, and referent leadership should produce positive outcomes for the business and the family, and high levels of employee satisfaction and commitment. It also argues that autocratic and laissez-faire/mission leadership should be associated with relatively negative outcomes for the business and the family and produce low levels of employee satisfaction and commitment. A study of 59 small family businesses produced the following significant results: participative leadership is positively related to both family and business outcomes as well as to employee satisfaction and commitment; referent leadership is positively related to family outcomes and employee satisfaction; and, unexpectedly, laissez-faire/mission leadership is positively related to employee commitment. Using correlational data as the basi s, the paper discusses practices that might promote participative, referent, and laissez-faire/mission leadership.

Introduction

This paper assumes that applying the terms family and business to an organization implies that the purpose of the organization is to provide positive outcomes for both the family and the business. Producing positive outcomes for both, however, seems somewhat at odds. The processes necessary to produce a successful business may disrupt a family, and the processes necessary to promote harmonious family interactions may interfere with a thriving business.

For example, consider the differences between a bureaucracy and a family. According to Weber's bureaucratic model of business, the purpose of business organizations is to maximize productivity (Henderson & Parsons, 1947). Thus, a business should eliminate anything that diminishes productivity, including hiring and promoting based on family relationships. Weber argues that the reason German organizations did not perform to potential was that people were hired because of social standing or "privileged status" rather than job-related qualifications. He argues that organizations should be rational and efficient and be founded on principles of logic, order, and legitimate authority. A major role of managers is to control and regulate activities carefully.

From this bureaucratic perspective, family businesses should include only family members who help maximize organizational performance. Moreover, business and family should be kept separate, and the treatment of family members working in the business and other employees should be identical. Family members should be hired, promoted, and rewarded based on qualifications. They should be monitored, and if they do not perform to set standards, then they should, like other employees, be reprimanded or fired.

On the other hand, the purpose of a family is to support, develop, and nurture family members. From this perspective, family comes first, business second. Family members are "insiders," others are "outsiders." Family provides a place of refuge and safety for family members. Emotions and family values such as patience, kindness, and love are prominent factors in making family decisions. Family resources are devoted to family members. And even less talented and ambitious family members are favored over outsiders when distributing family resources.

In combining families and businesses, compatibility problems thus arise (Hollander & Elman, 1988; Lansberg, 1983). How does a family business maintain a standard that yields maximum performance and, at the same time, accommodate the interests of the family? It seems that one or the other will have to adapt. The family can bend to the interests of the business, or the business can yield to the interests of the family. Ideally, the means and structure can be found to optimize the interests of both the family and the business (Whiteside & Brown, 1991).

Some families resolve this potential conflict between business and family by adopting the rational-bureaucratic model: that family issues cannot influence the business (Hollander & Elman, 1988) and the family cannot discuss business issues. In addition, family members are involved in the business only if they meet or exceed strict organizational standards. This model establishes rigid boundaries between business and home life. At home, the roles are parent and child; at work, the roles are boss and employee. Undoubtedly, in such arrangements, some family relationships suffer, particularly when performance-based decisions must be made at work regarding promotions, rewards, or reprimands.

Out of necessity or personal choice, many families have chosen to include family in the business because of family relationships. In some family businesses, family relationships take precedence over business success (Dunn, 1995). Family members are hired no matter the qualifications. Depending on their talents, personality, and work ethic, the business either benefits or suffers.

Some family businesses manage to merge family and business very successfully and take advantage of the unique characteristics of a family in business (see Aronoff & Ward, 1995; Kirchhoff & Kirchhoff, 1987). Others fail, resulting in negative repercussions for both the family and the business.

Based on Dyer's (1986) study of business cultures, this paper argues that the nature of leadership that the founder and other family managers exhibit establishes organizational norms, including how and when family members participate in the business. Each form of leadership treats family members differently, yielding different results. For example, in some businesses, the founder retains tight control, excluding or limiting the input of family members. In other family businesses, family members are considered insiders and nonfamily members are outsiders. Some businesses treat all employees like family members.

Balancing family and business is not an easy task, but one that family businesses must address. This paper assumes that most family businesses desire both positive family outcomes and positive financial outcomes. Furthermore, it assumes that some forms of leadership might be better able to deliver both business and family outcomes. This paper provides an overview of five approaches to leadership in family businesses and discusses their relative merit. It then reports an empirical test of the efficacy of these leadership approaches in achieving desired family and business outcomes, examines the practices of small family businesses that use these approaches, and provides recommendations.

Family Business Leadership

In 1986, Dyer published a study that has become a classic in family business literature. Dyer's study provides insights into the types of leadership prominent in family businesses. After examining over 40 family businesses, he categorized the businesses into four cultures. Dyer's description of each culture portrays a different form of management behavior. Although he did not label the behavior as leadership, his choice of tides for two of the four cultures -- participative and laissez-faire -- are, in fact, titles commonly used to describe leadership styles. Moreover, Dyer describes family management behavior sufficiently enough to infer the type of leadership in each culture.

According to Dyer (1986), the most prominent type of family business culture is paternalistic. In a paternalistic culture, relationships are arranged hierarchically. Family leaders retain all key information and decision-making authority, and managers closely supervise employees, giving subordinates little discretionary leadership (Hunt, Osborn, & Schuler, 1978). Autocratic leadership best describes the management behavior in this type of organization.

A second type of culture is called participative. This type of culture is relatively rare. Relationships tend to be based on trust and be group oriented; status and power are minimized. All employees are viewed as resources for information and problem solving. Performance evaluation criteria are applied universally to family and nonfamily organization members. …