Interorganizational familiness: How family firms use interlocking directorates to build community-level social capital

Richard H. Lester, Albert A. Cannella

Research output: Contribution to journalArticle

127 Citations (Scopus)

Abstract

We draw on the concept of community-level social capital and apply it to the situation of a family-controlled public corporation. While traditional agency theory argues that agency costs are minimized in a family-controlled business (FCB) due to an improved alignment of owner and manager interests, we argue instead that FCBs endure additional agency costs uniquely related to the family firm organizational structure. To mitigate these additional costs, we propose that FCBs use board interlocks to build and maintain community-level social capital. That is, the intercorporate network of FCBs generates shared understandings, values, problem solving techniques, and approaches to dealing with family issues. Further, the network generates a level of social support for family business owners and managers grappling with challenges endemic to family control of public corporations. We generate a number of propositions that can be used in future research to test the theory developed here. We conclude with the assertion that the community-level social capital generated by the network of FCBs is an important reason for the survival and persistence of individual family firms, despite the existence of additional family-related costs.

Original languageEnglish (US)
Pages (from-to)755-775
Number of pages21
JournalEntrepreneurship: Theory and Practice
Volume30
Issue number6
DOIs
StatePublished - Nov 2006

Fingerprint

Social capital
Family firms
Familiness
Interlocking directorates
Managers
Costs
Owners
Agency costs
Alignment
Organizational structure
Problem solving
Persistence
Family control
Shared understanding
Family business
Social support
Agency theory
Interlock

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Cite this

Interorganizational familiness : How family firms use interlocking directorates to build community-level social capital. / Lester, Richard H.; Cannella, Albert A.

In: Entrepreneurship: Theory and Practice, Vol. 30, No. 6, 11.2006, p. 755-775.

Research output: Contribution to journalArticle

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