The Family Business Bulletin
A Quarterly Report from the Center of Family Enterprise Research
Mississippi State University
Preparing for the Future in Family Firms
In this issue of The Family Business Bulletin, we present information about preparing for the future in family firms. Here you’ll find global insights as well as practical advice derived from research. This information will provide useful insights into 1) the challenges of professionalization in family firms, 2) how mentoring is a useful tool for fostering organizational commitment of both family and non-family employees, including tips for mentoring, 3) how one of our very own College of Business students is preparing for the future in his family firm, 4) how MSU’s entrepreneurship major supports family entrepreneurship and innovation, and 5) open-access resources to support family entrepreneurship.
INFORMATION – Performance Monitoring and Incentives
Professionalization Of Family Firms:
Monitoring And Rewarding Performance
by Dr. James J. Chrisman, COFER Director and Julia Bennett Rouse Endowed Professor of Management
Of particular concern is the design of incentive and monitoring systems to ensure managers’ performance is consistent with the achievement of the firm’s goals. The problems associated with evaluating and rewarding performance are different in family and nonfamily firms owing to variations in goals, altruistic behavior toward family and nonfamily employees, and strategic time horizons.
First, managers in family firms may be called on to achieve a broader and more complex array of goals because family owners seek noneconomic objectives associated with controlling ownership and identification with the firm. The problems associated with setting, monitoring, and communicating noneconomic goals are greater because they are highly subjective.
Second, the inherent tendency to treat family managers altruistically does not exist for nonfamily managers. This altruism can damage the performance of family firms over time even though owners may gain some psychological benefits. However, the most serious problem it may cause is its impact on future managers because of the precedent it sets. If not carefully managed, this precedent can affect the motivation and ability to recruit high quality managers, whether family members or not.
Finally, because many family owners intend to pass ownership and management to the next generation, a longer-term perspective is more likely to influence strategic thinking than is the case for owners of nonfamily firms, who are apt to sell or liquidate a firm’s assets when ready to retire. Although a long-term perspective is good for the family firm, it must be judiciously handled because nonfamily managers who must implement the strategy are unlikely to equally share its benefits. Deciding what to do a year ahead can be fraught with problems, but it doesn’t compare with the difficulties in making decisions regarding the next ten or twenty years.
To conclude, professionalization involves an agreement between owners and managers that defines (1) goals and strategies, (2) how performance will be monitored, (3) how performance will be measured, and (4) how managerial performance will be rewarded. Given that family firms often have goals idiosyncratic to the family, clear communication and consistent implementation between family owners and both family and nonfamily managers is as important to superior performance as a well-thought-out strategy. Likewise, monitoring is only as good as the information it provides to owners and managers so they can understand how to improve performance.
This article is adapted from: Chua, J.H., Chrisman, J.J., & Bergiel, E.B. (2009). An agency theoretic analysis of the professionalized family firm. Entrepreneurship Theory and Practice, 33, 355-372.
INFORMATION – Safer Gambles on Innovation
How Cooperation Can Help Family Firms Innovate
by Dr. Jennifer Sexton, Associate Professor of Management
Family businesses face a tough challenge: they often have the resources, the long-term mindset, and the motivation to innovate, yet they tend to invest in new products, processes, and technologies less than their non-family counterparts. Researchers call this the “family firm innovation dilemma.” It is rooted in something called socioemotional wealth: the deeply personal, non-financial value that family owners have tied up in their businesses – their identity, their legacy, their sense of control, and the traditions they’ve built over generations.
Innovation is risky. It requires outside capital and expertise, which can dilute family control, and it can upend cherished traditions and ways of doing things. For family business owners, these aren’t just financial risks. They can feel like a threat to the entire foundation of the firm. So even when innovation makes good business sense, the emotional cost can feel too high.
But the study also uncovered something encouraging: family businesses that partnered with external organizations were significantly more willing to innovate. Partnering with others changed the calculus. It reduced risk, spread costs, brought in outside expertise, and limited any loss of family control to just the specific project at hand, rather than threatening the business as a whole.
The type of partner matters, too. Family businesses that partnered with non-commercial organizations, universities, government agencies, and research institutions were significantly more likely to pursue innovation. Partnerships with commercially oriented organizations, such as suppliers, competitors, or foreign companies, showed no significant effect.
Why the difference? Non-commercial partners operate under different rules and incentives. They are less likely to engage in opportunistic behavior, less likely to misuse proprietary knowledge, and are often restricted by law in how they can use shared information. For family businesses that are particularly protective of their accumulated know-how and trade secrets, this matters greatly. Partnering with a university or government research body simply feels less threatening to the family legacy than partnering with a commercial competitor.
If your family business has been hesitant to invest in innovation, this research points to a safer path forward: seek out non-commercial partners. The bottom line is that innovation doesn’t have to mean betting the family legacy. The right partnership can make it a much safer and smarter gamble.
This article is adapted and summarized from Kim, T., Sexton, J.C., and Marler, L.E. (2023) Innovation as a mixed gamble in family firms: The moderating effect of inter-organizational cooperation. Small Business Economics, 60, 1389-1408.
INFORMATION & TIPS – Leadership Style and Innovation
How Authoritarian Leadership in Family Firms Can Fuel Innovation
by Chelsea Sherlock, Assistant Professor of Management
In a recent study published in the Journal of Small Business Management, my colleagues and I tackled a leadership-innovation “paradox” that many advisors see in the field: authoritarian leadership (a leader who keeps tight control over decisions and expects compliance) is usually assumed to reduce creativity, yet some family firms with these very directive leaders are highly innovative. In family firms, this authority often comes not only from a role title, but also from the leader’s family position (e.g., founder/parent), and that context can change how employees interpret directive behavior. Therefore, the study asks the question: when can a strict, top-down leadership style actually help family-firm innovativeness?
Using data from the Successful Transgenerational Entrepreneurship Project, the authors analyzed 1,267 family firms with fewer than 500 employees across 56 countries, comparing patterns across emerging versus advanced economies. Findings indicated that authoritarian leadership can be associated with more innovativeness in family firms under the right conditions. First, when emotional attachment is high, family members are more likely to interpret strict leadership as protective and mission-driven, rather than controlling. That shared commitment reduces resistance and helps the firm move quickly on innovation priorities. Second, authoritarian leadership was more beneficial for innovation in the context of emerging economies where institutional support is weaker. Here, centralized leadership can help family firms navigate uncertainty.
- Don’t “copy and paste” leadership styles. An authoritarian leadership approach is most likely to support innovation when the leader is widely seen as a steward of the family legacy and when the family system is aligned around the firm’s future.
- It is important to build the family’s emotional infrastructure. Family members should work actively to reinforce their shared purpose (why the business matters). They should invest in next-generation engagement and in clarifying what the family wants to preserve and what it is willing to change.
- Put guardrails around authority. Even if centralized control speeds decisions, innovation still needs information flow. High-performing family firms often succeed because the leaders set clear strategic boundaries, then ensure resources (time, capital, talent) are mobilized toward implementation.
Sherlock, C., Marshall, D. R., Dibrell, C., & Clinton, E. (2025). The bright side of authoritarian leadership in family firms: An emotional attachment perspective on innovativeness. Journal of Small Business Management, 1-35.
INFORMATION – Developing Entrepreneurs
Launch. Lead. Innovate. The MSU Entrepreneurship Major
Dr. Erik Markin, Associate Professor of Management
- Innovation challenges that foster mastery in the art of the pitch and solve real-world business problems in a competitive environment
- Courses like Experiential Innovation and Entrepreneurship that are complemented by the MSU E-Center’s VentureCatalyst© Program to help students navigate the complex path from raw ideas to an “investor-ready” ventures
- The Entrepreneurship Living Learning Community (LLC) at MSU in which students live and study alongside a cohort of driven, like-minded innovators, fostering a 24/7 culture of creativity
- Global reach & competition providing travel funding for students to represent MSU at prestigious external business plan competitions across the country
Whether the goal is to launch a new venture, lead a multi-generational family firm, or champion innovation in an existing venture, the entrepreneurship major at MSU provides the grit, tools, and network to make it happen.
For more information, contact Entrepreneurship Coordinator Dr. Erik Markin at [email protected] or explore our WEBSITE.
RESOURCES
Open Resources for Family Firms
- Familybusiness.org offers open access to articles written to help family businesses succeed. Research-based insights are shared with practitioners in mind.
- Entrepreneur & Innovation Exchange contains open-access articles, interviews, and videos based on applied entrepreneurship research written for founders and business leaders.
- SCORE provides free mentoring and education programs for small businesses through a large volunteer network of experienced executives.
- The Mississippi Small Business Development Center Network provides free business counseling, training, and resources to help entrepreneurs start, grow, and strengthen their small businesses.
- The U.S. Small Business Administration offers free courses, guides, and training through the SBA Learning Center.
- Family Business/Business Family Podcast is hosted by Zack Needles, editor-in-chief of familybusinessmagazine.com. Each episode features conversations with owners, advisors, and other family business professionals on all the things that make being part of a family enterprise so challenging – and so rewarding!
Mississippi SBDC
America’s SBDC
Mississippi State University is an equal opportunity institution.
Editor: Dr. Laura Marler
Head, Department of Management & Information Systems & Jim and Pat Coggin Endowed Professor of Management