Journal of Family Business Strategy xxx (xxxx) xxx

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Journal of Family Business Strategy

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Family management and family guardianship: Governance effects on family

firm innovation strategy
Louise Scholes a, *, Mathew Hughes b, Mike Wright c, Alfredo De Massis d, e, f, Josip Kotlar g
a
Institute for Innovation and Entrepreneurship, Loughborough University London, 3 Lesney Avenue, The Broadcast Centre, Here East Queen Elizabeth Olympic Park,
London, E15 2GZ, United Kingdom
b
School of Business and Economics, Loughborough University, Loughborough, Leicestershire, LE11 3TU, United Kingdom
c
Imperial College London Business School, 46 Exhibition Road, London, SW7 2AZ, United Kingdom
d
Free University of Bozen-Bolzano, School of Economics & Management and Centre for Family Business Management, Piazza Università 1, 39100, Bozen, Bolzano, Italy
e
Lancaster University Management School, United Kingdom
f
Zhejiang University, Institute of Family Business and Institute for Entrepreneurs, China
g
School of Management, Politecnico Milan, Milan, 1863, Italy

A R T I C L E I N F O A B S T R A C T

Keywords: Drawing on agency and stewardship theories, we examine how two dimensions of family governance influence
Family firm family firm innovation strategy. Specifically, we differentiate between the effects of Family Management (family
Family governance CEO, family managerial involvement, and next-generation involvement in the business) and Family Guardian­
Innovation
ship (trustees and family council) and study their effects on explorative and exploitative modes of innovation
Next generation
Family council
strategy. Our analysis of unique survey data from 328 UK private family firms shows that specific dimensions of
Trustees Family Management (next-generation involvement) and Family Guardianship (the existence of a family council)
Exploration are significantly positively associated with exploration. Exploitation, however, is positively associated with next-
Exploitation generation involvement only. These findings answer calls to theorize and empirically examine the heterogeneity
Innovation strategy of family firms’ innovation modes. These findings further respond to calls to better understand the relationship
between governance and behavior, advancing scholarly debate at the intersection of agency and stewardship,
family governance, and innovation.

1. Introduction suggesting differences in innovation strategy that we know little about.

This heterogeneity could be due to two aspects: first, the mode of
Innovation is the lifeblood of family firms, without which pioneering innovation strategy (i.e., exploration or exploitation), and second, the
competitors will obsolete their products and services (Calabrò et al., role of family firm governance.
2019; Hu & Hughes, 2020; Konig, Kammerlander, & Enders, 2013). First, very few studies distinguish between modes of family firms’
However, existing literature largely suggests that family firms have innovation strategies (Calabrò et al., 2019; De Massis, Di Minin, &
lower innovation capabilities (Sciascia, Nordqvist, Mazzola, & De Mas­ Frattini, 2015; Hu & Hughes, 2020), hence this emerges as a prominent
sis, 2015), are less willing to innovate (Chrisman, Chua, De Massis, direction to deepen current understanding of the relationship between
Frattini, & Wright, 2015), invest less in innovation (Röd, 2016), typi­ governance and innovation behavior (Madison, Holt, Kellermanns, &
cally innovate less than non-family firms (Llach & Nordqvist, 2010; cf. Ranft, 2016; Miller, Wright, Le Breton-Miller, & Scholes, 2015). Explo­
Duran, Kammerlander, Van Essen, & Zellweger, 2016), avoid endan­ ration requires creativity and experimentation to generate new products
gering family wealth (Hu & Hughes, 2020) and rely on innovation that is and services, whereas exploitation hones existing products and services
more incremental (exploitation) than radical (exploration) (De Massis, for higher quality and cost efficiencies (Hughes et al., 2018). Second,
Frattini, Pizzurno, & Cassia, 2015). Still, family firms are ubiquitous (La family governance defines the firm’s authority structure, incentives, and
Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1999) and display perfor­ accountability norms. Several scholars have argued that family gover­
mance comparable to non-family firms (Anderson & Reeb, 2003), nance dimensions are behavior-directing (Carney, 2005; Chrisman,

* Corresponding author.
E-mail addresses: [email protected] (L. Scholes), [email protected] (M. Hughes), [email protected] (M. Wright), [email protected]
(A. De Massis), [email protected] (J. Kotlar).

https://doi.org/10.1016/j.jfbs.2020.100389

1877-8585/© 2020 Published by Elsevier Ltd.

Please cite this article as: Louise Scholes, Journal of Family Business Strategy, https://doi.org/10.1016/j.jfbs.2020.100389
L. Scholes et al. Journal of Family Business Strategy xxx (xxxx) xxx

Sharma, Steier, & Chua, 2013; Eisenhardt, 1989; Madison et al., 2016) and firm behavior more broadly (Madison et al., 2016), specifically
and have the potential to play a pivotal role in family firm innovation advancing the scholarly debate at the intersection of agency and stew­
strategy (Chrisman et al., 2015; De Massis, Kotlar, Frattini, Chrisman, & ardship, family governance, and innovation.
Nordqvist, 2016). However, this relationship is still poorly understood,
primarily because existing research has not yet fully tackled the het­ 2. Theoretical background: Governance and innovation strategy
erogeneity of family firms’ governance structures (e.g., Arzubiaga, in family firms
Kotlar, De Massis, Maseda, & Iturralde, 2018; Sciascia et al., 2015).
Different dimensions of family governance have the potential to create That family firms invest less in innovation does not necessarily mean
disparities in family firm innovation strategy because the explicit and that they are less innovative (Röd, 2016). A distinction must be drawn
implicit control each can implant direct and regulate behavior (Carney, on the mode of innovation strategy (Hu & Hughes, 2020). Exploration
2005; Madison et al., 2016; Miller et al., 2015). However, the separate and exploitation represent two opposite modes of innovation strategy
effects of different family governance dimensions on modes of innova­ (He & Wong, 2004). Exploration focuses on innovation that emphasizes
tion strategy are unknown. Evidence that family firms underutilize new products, services, and processes necessary for long-term viability,
external governance sources such as councils and trustees corroborates while exploitation is concerned with innovation that improves what
this view (Scholes & Wilson, 2014; Wright, De Massis, Scholes, Hughes, already exists to consolidate short-to-medium term performance (Chang
& Kotlar, 2016), and a spectrum of governance dimensions can atten­ & Hughes, 2012; He & Wong, 2004; March, 1991). Both innovation
uate non-traditional agency problems in the family firm with increased strategies bear different degrees of risk (Hughes, 2018) and may be more
stewardship (Madison et al., 2016). Uncovering the effects of multiple or less appealing to family firms (Ceipek, Hautz, De Massis, Ardito, &
dimensions of family firm governance can add much to our under­ Matzler, 2020; Hughes et al., 2018). Following established logic in the
standing of heterogeneity in family firm innovation strategy (Calabrò family firm literature (see Madison et al., 2016), we predict that family
et al., 2019; Hu & Hughes, 2020; Miller et al., 2015). Accordingly, we firm managers’ behavior towards both modes of innovation strategy is a
address the following research question: What effects do family gover­ result of the governance structure of the firm. We use agency and
nance dimensions have on family firms’ exploration and exploitation as stewardship theories to derive expectations about the general behavior
modes of innovation strategy? of family firms and the consequences of the behavior-directing charac­
Building on agency and stewardship theories, we focus on two main teristics of different dimensions of family firm governance for innova­
dimensions of family firm governance. First, we draw on agency theory tion strategy.
to conceptualize family management as a dimension of family gover­ “Agency and stewardship theories describe the manager’s actual
nance related to internal coordination (Madison et al., 2016). Because behavior as the result of the governance structure of the firm” (Madison
family management is inward-focused, family firms are more likely to et al., 2016, p.84, emphasis added). Governance dimensions are
suffer problematic agency costs including nepotism, parental altruism behavior-directing. Both theories address the same phenomenon: how
and intrafamily conflict (Schulze, Lubatkin, Dino, & Buchholtz, 2001). governance mechanisms steer managers’ behaviors to predict organi­
While the interests of family members involved in the business are zational outcomes.1 Agency theory (Jensen & Meckling, 1976) and
commonly aligned (Chrisman, Chua, & Litz, 2004), conflict can emerge behavioral agency theory more recently (Hernández-Linares &
as opportunistic family members thwart the behavior of peers not López-Fernández, 2018; Wiseman & Gomez-Mejia, 1998) specify that
perceived to align with those interests (Cruz, Gómez-Mejia, & Becerra, governance mechanisms monitor the behavior of family agents to ensure
2010). Incentives to innovate may be thus reduced in favor of private consistency with the family’s goals. Deviance is curbed or enabled by the
benefits (Chrisman & Patel, 2012), which is likely to have a major presence or absence of governance dimensions. While family firms were
bearing on innovation strategy. Second, stewardship theory draws first thought to be free of agency costs, this is not so as dysfunction,
attention to governance dimensions that foster pro-organizational conflict, nepotism, and asymmetric altruism can occur as family agents
behavior (Davis, Schoorman, & Donaldson, 1997) and prioritize new pursue competing goals (Madison et al., 2016; Schulze et al., 2001). For
uses for resources (Carney, 2005; Le Breton-Miller & Miller, 2006). We example, granting decision-making power to family owners, managers,
identify family guardianship, consisting of trustees and councils, as an and next-generation members (the family management governance
externally oriented dimension of family governance. Aimed at protect­ dimension) allows for opportunistic and parsimonious behavior
ing the longer-term viability of the family firm and its assets (Scholes & (Carney, 2005). Parsimonious behavior is a function of family owners
Wilson, 2014), family guardianship also has a lot of potential to explain and managers actions involving the family’s personal wealth. This may
and predict family firms’ innovation strategy. reduce opportunism (Jensen & Meckling, 1976) but affects risk-taking
We test for these effects in survey data from a sample of UK family (Alchian & Demsetz, 1972), making it difficult to direct resources to
firms. We find that specific dimensions of Family Management (next- new innovation (i.e., exploration) (Anderson & Reeb, 2003). The result
generation involvement) and Family Guardianship (the existence of a is a preference for resource conservation and efficiency, underpinning
family council) are significantly positively associated with exploration. an emphasis on exploitation over exploration (Carney, 2005). None­
A family CEO and the proportion of family managers in the TMT do not theless, next-generation members can challenge the conservatism of
bear the anticipated negative effects on exploration. Exploitation, incumbents by leveraging their power to monitor and steer the behavior
however, is positively associated with next-generation involvement of family incumbents. Next-generation members may have different
only. attitudes about risk, desired returns, and investment horizons (e.g.,
We provide two main contributions to the literature. First, the study Mazzelli, Kotlar, & De Massis, 2018; Thomsen & Pedersen, 2000; Zell­
contributes to research on family firm innovation by revealing which weger, 2007), which are likely to heighten the tension toward innova­
dimensions of family management and family guardianship affect tion. Therefore, family management emerges as a dimension of family
exploration and exploitation as modes of family firm innovation. This governance that can alter the behavior of family managers toward
directly responds to persistent but hitherto unanswered calls among modes of innovation strategy, ensuring scrutiny of managers’ behavior
scholars to theorize and empirically evidence the heterogeneity of
family firms’ innovative behaviors (Calabrò et al., 2019; Chrisman et al.,
2015; Hu & Hughes, 2020; Rondi, De Massis, & Kotlar, 2019). Second, 1
The genesis of agency theory is precisely about how governance is needed to
we contribute new insights to the governance view of family firms by incentivize (direct) certain behaviors in listed companies while curbing
clarifying the agentic or stewardly properties of dimensions of family opportunistic behaviors (Eisenhardt, 1989; Jensen & Meckling, 1976). Stew­
governance in catalyzing exploration or exploitation. This responds to ardship theory also addresses the relationship between two parties from a
calls for better understanding of the relationship between governance behavioral and a governance perspective (Madison et al., 2016).

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L. Scholes et al. Journal of Family Business Strategy xxx (xxxx) xxx

versus family goals and mitigating harmful family agency costs. exploration and (b) positively associated with exploitation.
From a stewardship theory perspective (Davis et al., 1997), family
In addition to the CEO, much family business research has empha­
owners and managers may see themselves as custodians of the business,
sized the importance of family involvement in top management posi­
overcoming their self-interest to act for the benefit of the family and its
tions within the family business. Agency theory suggests that high
future generations (Miller & Le Breton-Miller, 2006). Stewardship is
proportions of family members in the Top Management Team (TMT)
“based on a steward whose behavior is ordered such that
will consolidate family power over the interests of others, leading to an
pro-organizational, collectivistic behaviors have higher utility than
internal focus that limits access to external information and new per­
individualistic, self-serving behaviors” (Davis et al., 1997, p.24). Stew­
spectives (De Massis, Kotlar, Campopiano, & Cassia, 2015; see also
ardship occurs as specific family governance mechanisms encourage
Herrero & Hughes, 2019) and reduces information search breadth
cooperation and involvement to facilitate the natural alignment of in­
(Classen, van Gils, Bammens, & Carree, 2012). It also suggests the
terests (Corbetta & Salvato, 2004; Davis et al., 1997). Stewardship
likelihood of asymmetric altruism and executive entrenchment, causing
behavior incited by family governance may therefore encourage
agency costs to rise (Madison et al., 2016; Miller, Le Breton-Miller,
far-sighted investments (i.e., exploration) (De Massis, Audretsch, Uhla­
Lester, & Cannella, 2007). These agency costs overrule any advantages
ner, & Kammerlander, 2018; Miller & Le Breton-Miller, 2006), but could
from stewardship. For example, under such conditions, family firms can
conceivably incite caution against risking family wealth (i.e., exploita­
suffer personal rivalries and self-control problems that cause dysfunc­
tion) (Anderson & Reeb, 2003), creating tension through executive
tion (De Massis, Kotlar, Mazzola, Minola, & Sciascia, 2018; Schulze
entrenchment (Madison et al., 2016) and behaviors that prevent the loss
et al., 2001). The consequences of these disagreements on innovation
of noneconomic wealth (Miller et al., 2015). However, family guard­
strategy may range from antipathy to hostility. When family members
ianship may introduce a viewpoint external to the family firm itself
dominate the TMT, it may be easier to get agreement on less risky
through trustees (often lawyers) and family councils (often including
strategies (i.e., exploitation) due to a desire to not jeopardize present
extended family members not involved in the business). Councils can
(and historical) success. There may also be little or no challenge to
reintroduce longer-term goals to redirect the behavior of family owners
family-centered non-economic goals, which may not be in the best in­
and managers. However, trustees might also influence risk-taking
terest of the long-term survival of the firm (Zellweger, Nason, Nordqvist,
through the priority they place on protecting assets for the next gener­
& Brush, 2013). Exploration as mode of innovation strategy will be less
ation (Scholes & Wilson, 2014).
likely and exploitation will be more likely when a greater proportion of
In sum, agency and stewardship theories provide complementary
family members sit in the TMT.
perspectives which help differentiate the dimensions of family gover­
nance, thus jointly explaining how each shapes different innovation H2. A greater proportion of family members in the TMT of a family
choices. Based on these premises, we now move to develop specific firm is (a) negatively associated with exploration and (b) positively
hypotheses for how dimensions of the family management and family associated with exploitation.
guardianship may associate with exploration and exploitation.
Finally, another prominent dimension of family management con­
cerns the involvement of next-generation family members. Next-
3. Hypotheses
generation involvement is likely to be beneficial to innovation in gen­
eral (Hauck & Prügl, 2015). Next-generation involvement may benefit
3.1. Family management and innovation strategy
exploration by offsetting the tendency of family managers to see the firm
solely as ‘their business’ (Carney, 2005). Next-generation members can
Family management as a dimension of family governance serves two
also disrupt the concentration of power in the hands of family managers.
general functions (Suess, 2014). The first is to monitor initiatives made
Next generations of family members willing to work in the family firm
by the CEO (Baysinger & Hoskisson, 1990), and the second is supporting
sometimes acquire experience either through working elsewhere or
the business (Bammens, Voordeckers, & Van Gils, 2011). We expect that
through formal education before joining the business. They can also be
family management will direct behavior toward resource conservation
brought into the family firm as apprentices before being given roles of
and wealth preservation (i.e., exploitation), made worse by a lack of
greater responsibility. They often end up as part of the management
family and business skills necessary for future health (i.e., exploration).
teams and a new dimension of family management governance to the
The first dimension of family management that we consider concerns
family firm. Moreover, the additional resources provided by the next
who is the CEO. When a family member sits in the controlling position of
generation can enhance exploration. Next-generation members are
CEO, their behavior will concentrate on the interests of the family first
beneficial because they possess new interests, new ideas, and new ob­
and foremost. From an agency perspective, the discretion afforded by
jectives compared to other members (e.g., Young, Peng, Ahlstrom,
their position allows them to personalize business activity. For example,
Bruton, & Jiang, 2008) but their familial character ensures they act as
owing to the family CEO’s high level of control over the firm under such
stewards of the business nonetheless. Adding next-generation members
conditions, a general tendency for wealth concentration and preserva­
can disrupt the status quo and positively influence an exploration mode
tion (Duran et al., 2016; Röd, 2016), we expect less R&D investments
of innovation strategy. (Carney, 2005). The ability of next-generation
(Sciascia et al., 2015). The desire to protect financial and non-financial
members to bring in fresh impetus and ideas should not diminish the
wealth inhibits innovation (Filser, De Massis, Gast, Kraus, & Niemand,
potential for an exploitation mode of innovation strategy either. While
2018; Miller et al., 2015) unless survival is at risk (Patel & Chrisman,
we expect that next-generation involvement is beneficial to both modes
2014). An innovation strategy oriented around exploration is then less
of innovation strategy, the effect is likely to be stronger on exploration.
likely (Hu & Hughes, 2020). But the relative safety afforded by incre­
mental improvements to products, quality and cost structures (Wright H3. Next-generation involvement in innovation initiatives is (a) posi­
et al., 2016) would not place wealth at risk, favoring an exploitation tively associated with exploration and (b) positively associated with
innovation strategy (Hughes et al., 2018) when the CEO is a family exploitation.
member. Coupled with the agency condition by which family CEOs see
their wealth, the firm’s wealth, and the family’s wealth as fundamen­ 3.2. Family guardianship and innovation strategy
tally tied together, we expect that family CEO as a dimension of family
management governance will negatively affect exploration but posi­ The ability of family members to innovate may change when family
tively affect exploitation. guardianship dimensions of family governance are introduced. Family
guardians are not always directly involved in the business and will not
H1. The presence of a family CEO is (a) negatively associated with
necessarily share a unified position on the priorities for the family firm,

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L. Scholes et al. Journal of Family Business Strategy xxx (xxxx) xxx

which in turn can create powerful pressures on innovation strategy. difficulty in identifying family firms for analysis (De Massis, Sharma,
Trustees and family councils acting as the two dimensions of family Chua, & Chrisman, 2012). Arosa, Iturralde, and Maseda (2010) sug­
guardianship may influence behavior towards exploration and gested that such limitations can be overcome by relying on detailed
exploitation. analysis of the information in databases or through surveys. We chose to
First, in some jurisdictions such as the UK, trustees may be employed rely on information generated from a survey. Currently, and to the best
by family business owners to allow assets (and shares) to be transferred of the authors’ knowledge, there is no official or dedicated database of
to the trustees who are usually family owners and trusted legal advisers family firms in the UK. The UK was chosen as a suitable setting to
(Scholes & Wilson, 2014). Trustees are an important dimension of family address our research question because of the high level of development
governance because, as significant shareholders, they have a duty to of corporate governance in general (La Porta et al., 1999) and because a
ensure that the assets of the business are managed in a way that provides significant minority of UK family firms have trustees and family coun­
maximum benefits to the family as beneficiaries (Wright et al., 2016). cils, two of our independent variables.
Trustees in some of the larger family firms can also be regarded as We identified family firms in the FAME database (Bureau van Dijk)
‘quasi-directors’ as they meet with directors regularly and therefore may that were a private company with a minimum of 20 employees. The
have significant influence over the running of the business (Scholes & filtering of family firms was a complicated and time-consuming task and
Wilson, 2014). Trustees are employed by family firms to ensure the proceeded as follows. A sample of firms was extracted from FAME that
secure transfer of assets, prioritizing the preservation of those assets contained firms’ details including shareholders where one main share­
(Scholes & Wilson, 2014). Trustees are therefore likely to act consistent holder (usually a person but sometimes a company) had more than 50 %
with a stewardship logic that diminishes scope for agentic opportunism of the equity (7,379 companies). This list was then manually checked to
and, as a result, renders the family firm more cautious in its behavior, by reduce it to firms that had at least two shareholders with the same
distracting importance away from exploration and towards exploitation surname with more that 50 % of the equity associated where one of these
as modes of innovation strategy. By way of monitoring and exercising shareholders was also a director. Added to this were a further 230 family
their own decision and control rights, trustees prevent family managers firm details provided by the Institute for Family Business (their mem­
and owners from acting opportunistically. Their attitude towards wealth bers). After checking and removing duplicates the sample contained
management and wealth preservation for their beneficiaries, which is 2,855 family firms. A postal questionnaire was sent to these firms across
ultimately the main role of trustees, will likely make them behave (and the UK between February and June 2015, and 348 usable questionnaires
therefore advise) in a more risk-averse way (Zellweger & Kammer­ were returned representing a response rate of 12.2 % which is respect­
lander, 2015). The trustees’ focus on wealth management, therefore, able for this type of survey (Newby, Watson, & Woodliff, 2003). Holding
prioritizes an exploitation innovation strategy. An exploration mode will companies and investment companies were removed leaving 328 com­
be less likely. panies for the data analysis. The people who completed the question­
naires are either CEO/MD/Chairman (80 %), director (15.6 %), or other
H4. The presence of trustees is (a) negatively associated with explo­
(4.4 %).
ration and (b) positively associated with exploitation.
The sample was representative of the population of 2,855 firms with
Family councils are a second dimension of family guardianship, one respect to industry sector and number of employees. For example, 24.9
that particularly helps diversify the range of family members who are % of the sample was in wholesale and retail trade compared to 24.1 % of
involved in scrutinizing the family business (Gersick, Davis, McCollom the population; 9.2 % of the sample was in construction compared to
Hampton, & Lansberg, 1997). Councils involve not only family members 11.1 % of the population. In terms of the number of employees 60.6 %
actively involved in the business but also members from the broader and 21.5 % of firms in the sample were medium and large respectively
family unit that have no active part in the business. This includes family compared to 62.4 % and 17.2 % in the population (testing population
members who are more distant, both geographically and relationally, versus sample distributions using the Kolmogorov-Smirnov test indi­
such as in-laws. Unlike an agentic model, the interests of the family cated no significant difference between the two). The Companies House
council naturally align with the general interest of family owners and (the United Kingdom’s register of companies) definition of medium size
managers (Madison et al., 2016) but with one crucial difference. Because (50–249 employees), and large size (250 or more employees) was used.
the purpose of family councils is to contribute to the future health of the
family business, this form of governance should channel behavior to­ 4.2. Measures
wards longer-term investments and innovation strategy (i.e., explora­
tion). Family councils behave as stewards and direct the business 4.2.1. Dependent variables
towards longer-term wealth maximization (Davis et al., 1997; Wright We operationalized innovation strategy based on items developed by
et al., 2016). As such, they may suggest new ways of growth hitherto He and Wong (2004). We asked respondents about the importance
unexplored by family CEOs and managers (Melin & Nordqvist, 2007; attached to a particular innovation strategy in their family firm. The
Neubauer & Lank, 1998). Through family councils, new information statements developed by He and Wong (2004) divide innovation strat­
enters the family firm’s decision-making. Acting as stewards, members egy into exploration and exploitation measured on a 7-point Likert-type
of the family councils can introduce and prioritize a wider range of scale (1 = not important; 7 = very important). The four exploration
objectives and activities and can propose new and radical directions for statements are: 1 ‘to introduce new generations of products’, 2 ‘to extend
the firm. We expect family councils to steer owner managers to make product range’, 3 ‘to open up new markets’ and 4 ‘to enter new tech­
longer-term investments for the greater wealth of the family, empha­ nology fields’. The four exploitation statements are: 5 ‘to improve
sizing an exploration mode of innovation strategy while deemphasizing existing product quality’, 6 ‘to improve production flexibility’, 7 ‘to
an exploitation mode. reduce production cost’ and 8 ‘to improve yield or reduce material
consumption’. These eight items were examined using exploratory fac­
H5. The presence of a family council is (a) positively associated with
tor analysis using SPSS (principal components analysis combined with
exploration and (b) negatively associated with exploitation.
direct Oblimin rotation). Two separate factors emerged mapping
directly to the expected items: the first containing items 1–3 (explora­
4. Method and data
tion; Cronbach Alpha = 0.780) and the second containing items 5–8
(exploitation; Cronbach Alpha = 0.876). Item 4, ‘to enter new technol­
4.1. Population and sample
ogy fields’, loaded almost equally on both factors so was excluded from
the analysis. New variables were created for these new factors (Explo­
The lack of a consistent definition of a family firm causes great
ration and Exploitation) by taking the mean value of the items in each

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L. Scholes et al. Journal of Family Business Strategy xxx (xxxx) xxx

factor. 4.3. Descriptive analysis

4.2.2. Independent variables Tables 1A and 1B provide an overview of the descriptive statistics
We group our independent variables into two categories of family regarding our sample of 328 family firms. In all these firms, the ‘family’
governance dimensions: family management and family guardianship. is the ultimate shareholder, with ownership ranging from 50 to 100%
The CEO, family managers, and next generation are directly involved in (the mean was 96 % and three-quarters of the firms were 100 % owned
managing the family firm, whereas family councils and trustees are not. by the family). The large proportion of family equity ownership is not
The latter are more distant and perform a guardianship role. For unexpected for family firms. Turnover ranges from £740,000 to £3.3
example, trusts are set up “to protect the shares in the event of family billion. The minority of firms are first generation (38.8 %) and are
members divorcing, becoming bankrupt, wanting to take “time out” of manufacturing (26.2 %). In terms of the board, 80 % have a family CEO
the business, or even behaving irresponsibly” (Scholes & Wilson, 2014, and 89 % have a family member as Chair. In terms of board size, most
pp. 1287). Likewise, councils do not directly manage the company on a firms have between 2 and 8 people (94.8 %) with only six firms (1.9 %)
day-to-day basis but are primarily concerned with succession planning, without a board (i.e. they responded saying one board member). These
the longer-term goals, and conflict resolution (Wright et al., 2016). boards are not passive, as 87 % are fully involved in ‘Making decisions
For family management, we include a dichotomous variable to note on long-term strategies and main goals’ and 75.6 % are ‘Actively initi­
whether CEO is a family member FamCEO. This variable takes the value ating strategy proposals’ (based on firms scoring 6 or 7 on the 7-point
1 if the answer is yes and 0 otherwise. We also include the percentage of Likert scale). In terms of firm management almost half of the firms
the TMT that are family members FamManagers (where these are the top have no family members in the team at all, but of those who do they
managers who report directly to the CEO) and finally we include the usually have between 1 and 4 family members. The average response for
involvement in innovation of the next generation NextGenInvolve on a 7- the next generation involvement in innovation is 3.3 which is just below
point Likert-type scale (1 = not involved; 7 fully involved) based on the the average (3.5), indicating less involvement rather than more. When
question ‘To what extent are the next generation family members looking at the family guardianship, 8% of firms have trustees, and 15 %
actively involved in innovation?’. While next generation family mem­ have a family council.
bers are not always in management roles, the ones who are involved in
innovation are more likely to be so. For family guardianship we used two 5. Results
dummy variables that indicate whether there are trustees (Trustees) and
whether the family firm has a family council (Family Council). These The relationships between family firm innovation and the indepen­
variables take the value 1 if the answer is yes and 0 otherwise. dent variables are examined using exploratory factor analysis combined
with hierarchical linear regression. Table 2 reports the correlations
4.2.3. Control variables among our study variables where the innovation variables are the
We waited to the 2015 financial year end (April 2016) to collect data composite variables relating to the different modes of innovation strat­
to control for the following firm-level variables. Family firm size can act egy. The correlations among the study variables are generally low, the
as a proxy indicator for family firm resource endowments and profit­ highest being 0.397. We also tested for multicollinearity and common
ability (Lee, 2006). We measured firm size as the Turnover of the family method variance. The maximum VIF value between the independent
firm from the FAME database closest available to the date of the survey variables is 1.71 and the maximum condition index is 47.2. This con­
data collection. A measure of age was included to test for the de­ dition index is higher than the recommended value of 30 but is associ­
pendency of either mode of innovation strategy on the age of the firm ated with only one variable with a variance proportion greater than 90
(De Massis, Chirico, Kotlar, & Naldi, 2014). Age is a continuous variable % (where an association with two or more variables would indicate a
representing years from the date of incorporation to April 2016. The past problem). These two results indicate, therefore, that multicollinearity is
profitability of a firm may influence its innovative behavior in a future not a major problem in this sample (Hair, Tatham, Anderson, & Black,
period. We controlled for this by including the return on assets (ROA) in 1998). The Harman’s single-factor test for common method variance
the year 2014 from the FAME database, ROA(2014), one year prior to among the variables in the factor analysis indicates that the first factor
our dependent variable. We created the variable IndManuf to control for accounts for just over half of the variance (50.8 %). While marginally
whether the family firm was classified as a manufacturing firm by NACE above the recommended threshold, this result cannot be interpreted
rev.2 (1 = yes) or not (0 = no) (codes 10–33 are allocated to unequivocally as indicative of common method bias (Meade, Watson, &
manufacturing firms). Whether the firm was a technology firm or not Kroustalis, 2007) nor does it imply an upwards bias in correlations
according to the NACE rev.2 and the Eurostat categorizations was also among variables (Doty & Glick, 1998). In addition, we have few items in
tested but there was no significance. our test such that ours is not vulnerable to the limitation of the
We also control for the following family-level variables. Family firm single-factor test to variance suppression as the number of latent factors
characteristics can vary over generations and these variations can in­ increases (Malhotra, Kim, & Patil, 2006). Moreover, any test for com­
fluence family firms’ financial performance (Chrisman, Chua, Pearson, mon method variance is blind because it extracts covariance but without
& Barnett, 2012; Miller et al., 2007). To determine whether family firm
behaviors vary depending on the generation currently managing them, Table 1A
we created the dummy variable FirstGen. The variable takes the value 1 Descriptive Statistics of Continuous and Categorical Variables.
if the family firm is managed by the first generation and 0 otherwise. The N Min Max Mean Std. Dev
equity stake held by the family (%) may have a bearing on performance
Variables
and is represented by the variable FamOwnership (where families own 50
Turnover/£1000 317 740.0 3265412.0 77040.6 287747.0
% or more of the equity in our sample firms). FemBoard as the proportion Age/Years 328 3.8 117.0 37.0 25.7
of females on the board (%) is also included since their presence has ROA(2014)/% 313 − 26.4 40.3 7.2 7.8
been associated with family firm survival (Wilson, Wright, & Scholes, FamOwnership/% 325 50 100 95.9 9.4
2013). Finally, whether the Chair (chairman/woman of the board of FemBoard/% 309 0 100 23.1 21.3
FamManagers/% 318 0 100 20.2 26.7
directors) is a family member FamChair taking the value 1 if the answer NextGenInvolve 314 1 7 3.3 2.4
is yes and 0 otherwise. Exploration (3 item 310 1.0 7.0 5.1 1.6
composite)
Exploitation (4 item 310 1.0 7.0 5.0 1.6
composite)

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L. Scholes et al. Journal of Family Business Strategy xxx (xxxx) xxx

Table 1B Model 1 (control variables only) is significant (p < 0.01) with an

Frequencies of Dichotomous Variables. adjusted R-squared of 0.067. Model 2 is significant (p < 0.01) with an
Yes number (%) No number (%) Total number (%) adjusted R-squared of 0.124.2 For our hypotheses pertaining to explo­
ration, no support is found for FamCEO (H1a) or for FamManagers (H2a).
Variables
IndManuf 88 (26.2) 242 (73.8) 328 (100) The family management variable NextGenInvolve (p < 0.01) is positively
FirstGen 125 (38.8) 197 (61.2) 322 (100) related to exploration giving support for H3a. There is no support for the
FamChair 287 (89.4) 34 (10.6) 321 (100) presence of Trustees (H4a) but there is support for the family guard­
FamCEO 261 (79.8) 66 (20.2) 327 (100) ianship variable Family Council (p < 0.01) as it is positively related to
Trustees 26 (8.2) 293 (91.8) 319 (100)
Family Council 49 (15.2) 274 (84.8) 323 (100)
exploration (H5a). The control variable Age (p < 0.05) is negatively
related to exploration, IndManuf (p < 0.01) and FemBoard (p < 0.05)

Table 2
Pearson Correlations Between all Variables.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1. Turnover 1
2. Age .104 1
3. IndManuf − .029 .103 1
4. FirstGen .031 − .265** − .120* 1
5. ROA (2014) .009 − .022 .103 .056 1
6. FamOwnership .040 − .007 − .146** − .112* .055 1
7. FemBoard − .097 − .154** − .038 .022 .105 .153** 1
8. FamChair − .041 − .037 − .002 .030 .142* .175** .147* 1
9. FamCEO − .126* − .127* − .032 .022 .036 .196** .096 .230** 1
10. FamManagers .072 .094 − .051 − .077 .020 .070 .120* .064 .147** 1
11. NextGenInvolve .047 − .060 .042 − .148** .017 .046 .114 .137* .165** .321** 1
12. Trustees .119* .052 .061 − .016 − .029 .017 − .091 .025 − .080 .056 − .033 1
13. Family Council .136* .184** .084 − .150** .033 .109 − .115* − .029 − .071 .177** .028 .069 1
14. Exploration − .017 − .152** .183** .041 .034 .044 .164** .099 − .002 .022 .237** .017 .116* 1
15. Exploitation .000 − .020 .167** − .039 .038 .061 .034 .041 .055 .069 .180** .064 .101 .397** 1
*
Correlation is significant at the 0.05 level (2-tailed).
**
Correlation is significant at the 0.01 level (2-tailed).

the reason for the covariance (Podsakoff & Organ, 1986). Where there
Table 3
are valid functional relationships, a borderline single factor may simply
Effects of Family Management (CEO, managers, and next generation) and Family
be a matter of valid functional relationships present in the data. Any
Guardianship (Trustees, Councils) on Exploration and Exploitation.
exclusion would cause true functional interrelationships to then be
Exploration Exploitation
overlooked. For more information on this test, see Podsakoff and Organ
β β
(1986).
Hausman tests for endogeneity were run for all eight independent Control Variables Model 1 Model 2 Model 3 Model
4
variables using the additional ‘instrumental’ variables in the sample and
Turnover .018 − .023 .010 − .017
indicated that endogeneity was not a major problem (Davidson & Age − .145* − .142* − .040 − .033
MacKinnon, 1993). We tested eighteen instrumental variables (from our IndManuf .216** .191** .180** .163**
questionnaire) including the total number of top managers, whether the FirstGen .029 .083 − .022 .016
ROA(2014) − .020 − .023 .010 .010
CEO was male, the presence of an operations board, the presence of a
FamOwnership .046 .041 .076 .061
family office, questions related to the ability and willingness of the FemBoard .136* .140* .020 .017
family, and finally the family goals. We found no omitted variable bias. FamChair .069 .058 .023 − .003
Partial confirmatory factor analysis (PCFA) confirms that the two-factor
model is supported: The incremental close-fit indices were all a good fit Independent Variables
(0.95 or higher) with the comparative fit index 0.998, normed fit index Family Management
FamCEO − .069 .024
0.998, and Tucker-Lewis Index 0.995; the absolute close-fit index FamManagers − .064 .002
RMSEA of 0.089 was just outside the acceptable range of ‘approximating NextGenInvolve .237** .164*
0.08 to 0.06 or less’ but is arguably good enough as it is very close to the Family Guardianship
acceptable range and, in any case, RMSEA is much less important than Trustees .022 .061
Family Council .154** .086
the incremental close-fit indices which were a good fit (Gignac, 2007;
2009).
R Square 0.093 0.163 0.038 0.075
Table 3 presents the regressions for the independent and control Adjusted R Square 0.067 0.124 0.011 0.032
variables on the two composite dependent variables derived from factor Overall Model 0.000 0.000 0.192 0.051
analysis relating to exploration and exploitation. Control variables were Significance
entered in the first block of the hierarchical multiple regression. The Regression coefficients (β) are standardized.
second block examined the direct effects of the independent variables *
p < .05.
associated with family management and family guardianship. Models 1 **
p < .01.
and 2 relate to exploration while models 3 and 4 relate to exploitation.

2
It is noted that although this model is highly significant the R-square value
is quite low although not unusual in management research (see for example
Meuleman, Amess, Wright, & Scholes, 2009).

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L. Scholes et al. Journal of Family Business Strategy xxx (xxxx) xxx

are positively related to exploration. exploration is notionally misplaced. However, we do reaffirm that a
Examining the two models for exploitation, Model 3 (control vari­ family CEO and family members in the TMT do not motivate exploration
ables only) is not significant with an adjusted R-squared of 0.011. Model either. For agency and stewardship theories, the involvement of next
4 is only significant at p < 0.1 (only fractionally exceeding p < 0.05 at generation members as agents breaks the indifference to innovation.
p = 0.051) with a marginally increased adjusted R-squared. No support Family councils, as a feature of family guardianship governance, also
was found for FamCEO (H1b), or for FamManagers (H2b), but NextGe­ support efforts to bolster exploration by requiring family owners and
nInvolve (p < 0.05) is positively related to exploitation, supporting H3b. managers to focus on the future longevity of the family business.
There is no support for the presence of Trustees (H4b) or Family Councils Moreover, the literature has assumed that family involvement gives
(H5b) and exploitation. Among the control variables only IndManuf rise to distinctive resources that spur innovation (De Massis, Frattini, &
(p < 0.01) is positively related to exploitation. Lichtenthaler, 2012; Habbershon and Williams, 1999). As a counter
viewpoint, agency and stewardship perspectives suggest the opposite,
6. Discussion warning that, greater family involvement can cause destructive altruism
(Madison et al., 2016). From our findings, we can only suggest that
To date, why some family firms adopt one mode of innovation involving the next-generation members appears to diversify the pool of
strategy over another, and specifically how different dimensions of interests, knowledge, and resources available to prompt exploration.
family governance explain those differences has been largely over­ Also, only next-generation involvement leads to exploitation. The
looked. Two urgent scholarly calls prompted our inquiry: that family involvement of the next generation can help to pass on the tacit
firms scholars have persistently neglected to distinguish between modes knowledge of the founders and can imbue them with the ethos of the
of family firms innovation strategy (Calabrò et al., 2019; De Massis, Di founders (De Massis, Frattini, Kotlar, Messeni-Petruzzelli, & Wright,
Minin et al., 2015; Hu & Hughes, 2020), and therein to better under­ 2016; Miller & Le Breton-Miller, 2006). Theoretically, this may cause
stand the depth of the relationship between governance and innovation these next-generation agents to merely repeat the preferences of
behavior (Madison et al., 2016; Miller et al., 2015). Building on agency older-generation members, causing a family orientation lock and path
and stewardship theories, we examined the effects of two dimensions of dependence. Instead, our results place next-generation members at the
family governance–family management and family guardianship–on forefront of a diverse, and more rounded innovation strategy.
exploration and exploitation among family firms. For exploration, our For our second contribution, we address the calls for more infor­
results indicate that a family CEO and the proportion of family managers mation on the relationship between governance and family firm
in the TMT, as two common features of family management, do not bear behavior (Madison et al., 2016). We proposed that variables related to
the anticipated negative effects on exploration predicted under the the family management and family guardianship dimensions of family
agency theory perspective on family firms. Nevertheless, they do not firm governance direct behavior and channel (in)action because of the
exhibit positive effects on exploitation either. However, the involvement agentic and stewardship properties they provoke. Originally, agency
of next-generation members (which refers to the family management problems were not expected in family firms because of the unification of
dimension of family governance) and the existence of family councils ownership and control (Carney, 2005). However, such unification tol­
(which refers to the family guardianship dimension) are both positively erates competing interests among family owners and managers through
related to exploration. On the other hand, exploitation is positively their ability to make opportunistic investments; but its advantage is
associated with next-generation involvement only. Overall, our findings tempered by the tendency to associate family wealth and the wealth of
demonstrate the importance of distinguishing between different di­ the business as one and the same (Carney, 2005). Increasing the number
mensions of family firm governance, and provide suggestive evidence of of family decision-makers appears to create conflict that nullifies any
the importance of specific aspects, such as next-generation members and mode of innovation strategy rising to prominence. The conflict is neither
councils, in explaining family firms’ heterogeneous modes of innovation destructive nor constructive (cf., Kotlar & De Massis, 2013), and, based
strategy. on our non-findings, are perhaps neutralizing instead. Trustees do not
Our first contribution to the literature provides new insights into alter this apparent stalemate either which may mean that their role is
heterogeneity among family firms in relation to their innovation more focused on ensuring accountability rather than entrepreneurial
behavior (see Chrisman et al., 2015; Chrisman & Patel, 2012; Feranita, activities through innovation; but next generation involvement and
Kotlar, & De Massis, 2017). We add to this important debate by family councils do. Agency and stewardship theories describe family
explaining why family firms engage in different modes of innovation owners’ and managers’ actual behavior as the result of the governance
strategy, linking these differences to their diverse governance arrange­ structure of the firm. While even family agents can be self-serving in the
ments. This advances our knowledge in two ways. First, differences in context of protecting wealth and exercising decision rights, their sub­
type of family firm innovation exist and motivating these differences sequent tendency for stewardship may exacerbate the extent to which
appears to rely on certain dimensions of family governance. Specifically, the motivation to innovate is diminished despite an apparent ability to
next-generation involvement and family councils bear the necessary innovate (Chrisman et al., 2015). Under stewardship, goals will more
behavior-directing properties that encourage an exploration-based naturally align (Davis et al., 1997; Jaskiewicz & Klein, 2007) but given
innovation strategy. But, neither family CEOs, family members in the the unified agency of owners and managers, behavior is seemingly
TMT, nor trustees appear to have any bearing on exploration. These channeled to the preservation of wealth at the expense of either inno­
forms of governance appear consistent with ideas of conservatism vation strategy. Stated differently, the goals of the family firm appear to
associated with slower-growth family businesses (e.g., Anderson & narrow.3
Reeb, 2003; Madison et al., 2016) likely due to competing agency (e.g., Exploration and exploitation are separate modes of innovation
Carney, 2005). Historically, scholars linked family firms’ innovation strategy and different to each other, and balancing exploration and
behavior to either agency or stewardship characteristics, in which exploitation (i.e., attaining “ambidexterity” in innovation strategy;
governance harmed exploration. More recently, scholars suggest that Hughes, Martin, Morgan, & Robson, 2010, 2018) can pose significant
agency and stewardship characteristics can shape different innovation challenges to the family firm (Moss, Payne, & Moore, 2014), especially
choices consistent with the idea that family governance dimensions are due to the existence of multiple short-term and long-term family goals
behavior directing (Madison et al., 2016; Neckebrouck, Schulze, & (Kotlar, Fang, De Massis, & Frattini, 2014; Patel & Chrisman, 2014). Our
Zellweger, 2018). We provide indicative evidence that only certain di­
mensions of family governance have an effect (namely next generation
involvement). From our findings, the theoretical expectation that the 3
For a debate on organizational goals, please see Kotlar, De Massis, Wright,
family management dimension of family governance may obstruct and Frattini (2018).

7
L. Scholes et al. Journal of Family Business Strategy xxx (xxxx) xxx

findings suggest that the involvement of next-generation family mem­ certain levels and modes of innovation strategy choose to purposefully
bers in prompting both modes of innovation strategy may provide the structure their governance and leadership to optimize the likelihood of
anchor point for both modes of innovation strategy to emerge in the achieving their objectives. In other instances, accumulated innovation
family firm. The absence of any effects from family CEO, family mem­ capabilities may influence monitoring and control when later-
bership in the TMT, and trustees on either mode of innovation strategy generation family members join (Dieleman, 2019). It would be inter­
points to the incompleteness of agency and stewardship theories in esting to conceive of innovation strategy as an antecedent to organiza­
explaining family firm innovation strategy. We propose that despite tional form and not as an output of it in future research. Third, the
their behavior-directing potential, the relationship between (most) measures chosen for innovation are taken from previous literature, but it
family governance dimensions and family firm innovation strategy ap­ is possible that they have not captured all possible dimensions of
pears to be long-linked, with the antecedents and consequences of exploration and exploitation, or of manufacturing versus service con­
family firm innovation strategy not being sufficiently causally adjacent texts, or of process versus product innovation. These are themes that
to the innovation strategy construct. This is perhaps indicative in our future research on family firms could address and consider whether
relatively low R2 values. Intermediate outcomes between family scales unique to family firms are necessary. An advantage of our study is
governance and innovation strategy may explain when and why specific that we investigate private family firms, against a significant portion of
governance dimensions may bear effects (e.g., mechanisms and media­ the literature that is dedicated to or relies solely on data from publicly
tors through which subsequent changes in innovation strategy follow) listed family firms. Future research should look to compare the gover­
and precisely what behaviors are directed by specific family governance nance configurations of both private and public family firms to appre­
dimensions. ciate subtler effects on innovation strategy. Finally, our R2 values were
rather low and coupled with our non-findings point to an interesting
6.1. Insights for family owners and managers avenue for further investigation: that the relationship between family
governance and innovation strategy is long-linked, warranting analysis
For family owners and managers, a key priority for medium-term of causally-adjacent, intermediate mechanisms and effects to discern the
health and long-term wealth must be the family firm’s readiness for precise behaviors driven by specific family governance dimensions.
innovation. But its priority is often diminished given evidence that New research into the effects of the different governance contexts on
family firms exhibit a general unwillingness to innovate (Chrisman successful innovation is warranted. A distinction must be drawn be­
et al., 2015). Our study provides directions for which dimensions of tween the effects of specific factors in motivating innovation activity
family governance can shift emphasis towards innovation and change versus its subsequent commercialization (Kyriakopoulos, Hughes, &
the mode of innovation strategy. Scrutiny is needed of the governance of Hughes, 2016). Even though one governance context may discourage
the family firm and whether family management and family guardian­ exploration or exploitation, it does not mean that it cannot assist in
ship as dimensions of family governance create or diminish the condi­ successful launch or commercialization. Dieleman (2019) finds evidence
tions for exploration or exploitation modes of innovation strategy to that family governance attributes support innovation activity during
emerge. ceteris paribus, the family firm will normally shape strategies some phases but impede it during others. To what extent the agentic and
that preserve and protect socioemotional wealth, and thereby diminish stewardship tendencies of family firm governance dimensions affect this
the strategic emphasis on innovation despite the importance of explo­ second phase of an innovation process is a question that needs to be
ration and exploitation for high performance (Hughes et al., 2018). To answered to truly appreciate the consequences of the different family
alter this situation, and provide the strategic emphasis for innovation, governance regimes. Answers to this question can shed further light on
family owners and managers should adopt family councils and involve the puzzle about why family firms invest less in innovation but can have
next generation members in innovation activities. Both measures will a higher innovation output than nonfamily firms (Duran et al., 2016).
increase the opportunity for an exploration innovation strategy to form The role of women in the boardroom is rarely discussed in the family
and take hold. Next-generation involvement also encourages an firm literature but our control variable results suggest the need for
exploitation innovation strategy. However, because an further research in this area. Female presence on the board can bring
exploitation-based innovation strategy is often a ‘default mode’ for additional perspectives that might otherwise be missing (Brammer,
many businesses, it is particularly interesting to note that Millington, & Pavelin, 2009; Campopiano, De Massis, Rinaldi, & Scias­
next-generation involvement is related to both innovation strategies cia, 2017). The effect of women on the board in reducing conflict (Huse,
while the effect on exploration is even stronger. Exploitation innovation Nielsen, & Hagen, 2009), for example, may create the space for
can be thought of as security-blanket innovation. It is neither risky nor explorative innovative activity as our control variable results suggest.
does it change the family firm or its parameters. Exploration, however, is We know too that women influence firm survival (Wilson et al., 2013).
novel, riskier, and uncertain, with a longer return horizon; but it is Our control variable results observe a positive association with an
essential to the longer-term sustainability of the business and its exploration innovation strategy when women are present as board
competitiveness. It is vital to capitalize on next-generation members members. Further research should examine whether female presence on
then to invigorate innovation strategy. Involving next-generation the board is also associated with innovation that is more successful or
members can include integration into activities in pre and post periods whether their contribution to exploratory innovation is one reason for
of succession, family meetings, and integrating less-active next-genera­ the reduction in bankruptcy risk indicated by Wilson et al. (2013).
tion members in business issues and plans for future ownership and Although we find a positive link with innovation, the role of the
participation in the business. This endeavor can be supported by family family council is not well-understood. Family councils are heteroge­
councils. Family councils can be especially helpful in drawing in sibling, neous, so future research could focus on understanding how they are
cousin, and broader family consortia or stakeholders to support the constructed and how they affect innovation performance. In addition,
business and compel new insights and perspectives to enter since just under a fifth of family firms have family councils, it is
decision-making. important that this governance context is not overlooked. Family firms
generally tend towards preservation and careful growth of family wealth
6.2. Limitations and future research but with scope for opportunistic investments as they arise. There is an
overlap here with the concept of socioemotional wealth (e.g.,
Our contributions are tempered by limitations. First, our findings are Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson, & Moyano-Fuentes,
potentially specific to the U.K. and might not generalize to countries that 2007). To further understand how governance contexts affect innova­
do not share a similar institutional environment. Second, we cannot rule tion outcomes, it would be worthwhile to explore the goals of the family
out some reverse causality. Some family businesses might aspire to firm and their socioemotional wealth considerations in relation to

8
L. Scholes et al. Journal of Family Business Strategy xxx (xxxx) xxx

governance, also employing dyadic perspectives to examine the re­ continue probing these important issues by furthering our understand­
lationships between different categories of family firm members such as ing of family firm governance and its nuances, as well as testing their
principals and agents, or supervisors and supervisees (Campopiano & effects on other outcomes pertaining to innovation and strategic
Rondi, 2019). behavior more broadly.
Family councils are positively associated with exploration. We
argued that family councils should steer owner managers to make CRediT authorship contribution statement
longer-term investments for the greater wealth of the family and, in turn,
generate a stronger emphasis on exploration. However, in theory, there Louise Scholes: Conceptualization, Formal analysis, Methodology,
may be circumstances in which the opposite may hold true. To make Software, Writing - original draft, Writing - review & editing. Mathew
room for longer-term investments, family members may need to sacri­ Hughes: Conceptualization, Writing - original draft, Writing - review &
fice short-term gains, which might be unattractive for family members editing. Mike Wright: Conceptualization, Writing - review & editing.
whose personal annual income depends heavily upon the dividends paid Alfredo De Massis: Conceptualization, Writing - review & editing.
by the family firm. Such a scenario could lead to strong resistance Josip Kotlar: Conceptualization, Writing - review & editing.
against longer-term investments and thus exploration.4
Interestingly, among our control variables, firm age is negatively Acknowledgements
related to exploration mode only, which points to the importance of
disentangling these basic modes of innovation strategy in relation to The authors thank the IFB Research Foundation (ifb.org.uk
contextual factors. Understanding the effects of governance on models of /research) in the United Kingdom for generously sponsoring the
innovation strategy at different values of firm age or stages of the firm research study underpinning this paper. This project led to a compre­
life-cycle (e.g., Hauck & Prügl, 2015) can help further our understanding hensive report into family business entrepreneurship available at:
of the heterogeneity of family firm innovation behavior. Concurrently, https://www.ifb.org.uk/media/1874/ifbrf-entrepreneurship-report.
the locus of innovation often lies outside the family firm, through alli­ pdf. We would also like to thank our friend and esteemed colleague Mike
ances (Bouncken, Hughes, Ratzmann, Cesinger, & Pesch, 2020) or Wright, who sadly passed away as the present work was going through
collaboration (Feranita et al., 2017). Firms are increasingly buffeted by the blind review process, and celebrate his life and huge contribution to
social pressures (Gali et al., 2020; Rahman, Aziz, & Hughes, 2020), and academia.
family firms are especially sensitive to forces acting on their freedom to
make strategic choices (Cesinger et al., 2016). References
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some family firms do better than others. We encourage future scholars to family firms: Behavioral agency and myopic loss aversion perspectives. The Academy
of Management Journal, 55(4), 976–997.

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We thank an anonymous reviewer for this helpful suggestion.

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