family and lone founder ownership and strategic behaviour: social context, identity, and...

Family and Lone Founder Ownership andStrategic Behaviour: Social Context, Identity,and Institutional Logicsjoms_896 1..25

Danny Miller, Isabelle Le Breton-Miller andRichard H. LesterHEC Montreal and University of Alberta; HEC Montreal and University of Alberta; Texas A&M

University

abstract There is controversy in the literature about the effects of ownership on strategyand performance. Some scholars have taken agency explanations as definitive, arguing thatclosely held firms outperform. Empirical studies, however, show conflicting findings for firmswith concentrated ownership: lone founder firms outperform, family firms do not. Suchconflicts may be due to the failure of agency theory to distinguish between the social contextsof these different types of owners. We argue that explanations of performance must take intoaccount not simply ownership, but who are the owners or executives and how their socialcontexts may influence their strategic priorities. Family owners and CEOs, influenced byfamily stakeholders in the business, are argued to assume the role identities and logics of familynurturers and thus strategies of conservation. By contrast, lone founders, influenced by a widerset of market-oriented stakeholders, are argued to embrace the identities and logics ofentrepreneurs and strategies of growth. Family founders and founder-executives are held toblend both orientations. These notions are supported in a study of Fortune 1000 companies.

INTRODUCTION

There is lively debate in the literature about the effects of ownership on strategy andperformance (Durand and Vargas, 2003; Greenwood et al., 2007). Some scholars havetaken agency explanations as definitive, arguing that closely held firms outperformbecause they can curb opportunism by agents ( Jensen and Meckling, 1976). Others havetaken exception to that view, suggesting that ownership concentration has negativeagency effects on strategy and performance as major owners use their power to exploitthe business (Morck et al., 1988, 2005).

These disputes in the governance literature exist even when studying concentratedownership of the personal variety. Some researchers find that family firms outperform

Address for reprints: Danny Miller, HEC Montreal & University of Alberta, 4642 Melrose Ave., Montreal,Quebec H4A 2S9, Canada ([email protected]).

© 2010 The AuthorsJournal of Management Studies © 2010 Blackwell Publishing Ltd and Society for the Advancement of ManagementStudies. Published by Blackwell Publishing, 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main Street,Malden, MA 02148, USA.

Journal of Management Studies 48:1 January 2011doi: 10.1111/j.1467-6486.2009.00896.x

(e.g. Anderson and Reeb, 2003; Villalonga and Amit, 2006), others that they do not (e.g.Bennedsen et al., 2007; Maury, 2006). Miller et al. (2007), in distinguishing family firmsfrom lone founders firms, showed these differences to be attributable to the identity of theowners. Thus predictions of agency theory that rely on the positive effects of ownershipconcentration do not apply across the board: the performance of family firms and lonefounder firms, both of which share concentrated ownership, is quite different. The social

context of owners, not simply their share ownership, seems to matter. We shall arguetherefore that it is useful to go beyond agency theory – which is too narrowly focused oneconomic self interest – to examine the social contexts of these owners and the interac-tion constituencies, role identities, and behavioural priorities to which these divergentcontexts give rise (Gomez-Mejia et al., 2001; Greenwood et al., 2007). These lattercharacteristics are encapsulated by a literature on ‘institutional logics’, specifically on‘familial’ and ‘market’ logics that we argue pertain to family and lone founder actors,respectively (Friedland and Alford, 1991; Thornton et al., 2005). We examine theconcrete business strategies suggested by these contexts in a sample of Fortune 1000companies.

Governance Disputes and the Limits of Agency Theory

According to agency theory, ownership structure can affect managerial behaviour andfirm performance. Businesses in which ownership is concentrated are said to outperformbecause their owners have the power and incentive to better monitor their managerialagents and thereby avoid the information asymmetries that raise agency costs ( Jensenand Meckling, 1976; Morck et al., 1988). Major owners also are said to exploit smallerones by entrenching themselves and appropriating firm assets (Morck et al., 2005).

There have, however, been conflicts in the literature on governance that suggest theinadequacy of an agency perspective to explain the consequences of ownership concen-tration. These conflicts become clear when we examine the last several decades ofresearch. Some research on large public companies showed that family firms outper-form. For example, Anderson and Reeb (2003), Kang (1999), Leach and Leahy (1991),McConaughy et al. (1998), and Villalonga and Amit (2006) found that family firmsoutperform in market valuations, and often also in return on assets, especially during thefirst generation. By contrast, other studies found that family firms do not outperform, andmay even underperform, despite any presumed agency advantage (cf. Bennedsen et al.,2007; Cronqvist and Nilsson, 2003; Holderness and Sheehan, 1988; Maury, 2006;Pérez-González, 2006). In attempting to reconcile these findings, Miller et al. (2007)found in their analysis of US public firms that whereas lone founder firms, which previousresearch had classified as family firms, did enjoy superior market valuations, family firmsdid not – even in the founder generation. The crucial factor determining performancewas whether or not an individual lone founder was present or a set of owners or managersacting with other family members as major shareholders or officers in the company. In bothtypes of organizations, ownership was concentrated, yet performance differed – anoutcome neither anticipated nor explained by agency theorists.[1] A major difference hereis the social context of ownership as reflected by key constituencies – specifically, thepresence of multiple influential family actors in one type of firm, and a more typical set

D. Miller et al.2

© 2010 The AuthorsJournal of Management Studies © 2010 Blackwell Publishing Ltd andSociety for the Advancement of Management Studies

of arms length investors and stakeholders in the other. In family firms, family actors areprimary constituencies of one another. Their close affective ties may evoke in themfamilial attitudes and agendas even in a business context. By contrast, lone founders’constituencies are often more emotionally detached, diverse, and financially motivated.They will encourage more of a commercial agenda.

There are many ways of characterizing social context and ours is driven by contrastsbetween the settings of lone founders and family actors. As the social constituencies ofthese parties differ, so will their consequent role identities, sources of legitimacy, and thusstrategic priorities. The institutional literature encapsulates these categories in the formof two common ‘institutional logics’ adopted by key owner-actors: the familial logic offamily owners or owner executives and the market or ‘entrepreneurial’ logic of lonefounders (Friedland and Alford, 1991; Thornton et al., 2005).

Thornton and Ocasio (1999, p. 804) define institutional logics as ‘the formal andinformal rules of action, interaction and interpretation that guide and constrain decisionmakers. Thus organizational strategies and practices are legitimized by, and also mani-festations of, such logics’ (Greenwood et al., 2010; Reay and Hinings, 2005). Accordingto Thornton (2004, p. 2) logics ‘emerge from the institutional orders of the inter-institutional system’, namely, family, religion, democracy, and market capitalism. Logics,because they confer legitimacy, can mould behaviour. They have the most influencewhen individuals ‘identify with the collective identities of an institutionalized group’ suchas a family or profession (Thornton and Ocasio, 2008, p. 119). Although identity is afunction of social interaction with salient constituencies (Stryker, 1980), it also may arisefrom a sense of commonality or an aspiration, with or without regular social contact witha reference group (Tajfel and Turner, 1979). Behaviour opposing legitimated logics maybe punished socially.

The Social Context of Ownership: Interaction, Identity, and Logics

The social context of owners can influence their identities and logics in several ways. Oneis simply through the use of common cognitive frames (Burke, 1980). Owners, throughfrequent association with a stable group of people, come to share perspectives – theyshare scripts for understanding the world: scripts about ‘family loyalty’, for example(Phillips et al., 2004). Social context may also have a normative impact – as reciprocationand emotional closeness breed a sharing of values and a sense of responsibility to thegroup: thus family owners may behave altruistically towards their kin (Schulze et al.,2001; Stryker, 1980, 1987). Finally, are the more readily observable political dimensionsof social context whereby identification with a group and dependence upon it bringpressures to follow a group agenda: a founder must serve key investors (Karra et al.,2006; Greenwood et al., 2010). These aspects of social context give rise to role identitiesconsistent with group norms (Ashforth and Mael, 1989; Stryker, 1980, 1987). They alsoinduce owners to assume societal logics closest to the aspirations of the group (Thornton,2004). Such cognitive and normative influences are exerted in greatest measure byproximate groups such as a family, but also in part by more amorphous ones, such as anelite an actor identifies with – for example, the class of entrepreneurs (Tajfel and Turner,1979).

Firm Ownership and Strategic Behaviour 3

© 2010 The AuthorsJournal of Management Studies © 2010 Blackwell Publishing Ltd and

Society for the Advancement of Management Studies

We can relate social context, role identities, logics, and strategic behaviour moreconcretely by moving to specifics. Take first a major family business owner or owner-executive. That individual must interact with other family owners, directors, or manag-ers in the business. Given the intimacy, stability, emotional impact, and broad scope offamily ties, other family members typically will represent disproportionately influentialconstituencies who may bring to bear significant cognitive, normative, and politicalinfluences (Nisbet, 1970). Family members often demand from their firm steady financialsupport, security, careers, and ‘altruistic’ benefits to achieve family harmony (Schulzeet al., 2001). In so doing they call forth among family officers familial identities andfamily nurturing roles (Stryker, 1980), and bestow legitimacy to those serving familywants (Bertrand and Schoar, 2006). These orientations reflect the familial logic of Fried-land and Alford (1991) – one of nurturing, generativity, and loyalty to the family. Theymotivate family owners to manage the business to provide family members with stableincomes, long term security, and control of the firm (Morck et al., 2005; Schulze et al.,2001). Such priorities can shape business strategy by diverting firm resources to servefamily needs and enforcing financial conservatism. They favour generous payouts andavoid risky projects or investments that might jeopardize family income or control. Inshort, familial contexts, role identities, and logics may elicit a ‘conservation’ strategy; onethat may well limit performance.

The social context of the lone founder is quite different. There are no family memberspresent as compelling constituents but rather a more diverse set of stakeholders – venturecapitalists, partners, investors, employees, and customers – whose interests are largelyeconomic. Via regular interactions, these parties exert their influence on the founder(Donaldson and Preston, 1995). There are pressures to reap returns for investors andpartners, to expand opportunities for employees, to enhance service to clients, and tomeasure up to competitors (Hitt et al., 2002). In addressing these demands founders mustembrace an entrepreneurial role – one that secures legitimacy by serving theseeconomically-motivated constituencies (Loasby, 2007; Stryker, 1987). Lone founders alsomay identify symbolically with the role of business builder or creator, a role that developsin the course of various business initiatives and interactions with fellow entrepreneurs(Loasby, 2007; Tajfel and Turner, 1979). These identities, roles, and sources of legitimacyrelate to what Boltanski and Thevenot (1991) and Thornton et al. (2005) variously termthe ‘market logic’ or ‘capitalist logic’ that prizes growth in share price, wealth accumu-lation, keen competition, and committing investment capital. As such we call it an‘entrepreneurial logic’. This logic endorses, even celebrates, a strategy of growth thatinvests in the business to grow and improve it and seize opportunities.

We will elaborate briefly on these orientations of lone founder and family owners andexecutives (summarized on Table I), and draw hypotheses about their firm’s strategiesand performance. Our methods and findings will then be presented and discussed.

ORIENTATIONS OF MAJOR PERSONAL OWNERS AND EXECUTIVES

The Entrepreneurial Orientation: Lone Founders and their Firms

Context, identity, and logic. Given a social context of constituencies such as venture capi-talists, investors, partners, and managers, lone founders are expected to embrace the

D. Miller et al.4


entrepreneurial role identity and its associated logic. As noted, the entrepreneurialidentity may be reinforced by a founder’s frequent interactions with these stakeholders asa business builder and deal maker, and as a participant in struggles and successesachieved over the years (Stryker, 1980). Many of these stakeholders will demand superiorgrowth in return for their investments in an emerging enterprise (Knight, 1921). Forexample, investors and venture partners will want ample and growing returns, managerswill want advancement. Thus a founder’s accountability to these stakeholders willsupport an entrepreneurial mission. The legitimacy and authority, even self-esteem, of alone founder may derive in part from these stakeholders and that mission.

Lone founders also may assume an entrepreneurial role identity because they seesimilarities between themselves and other firm founders (Tajfel and Turner, 1979).Indeed, that identity may be influenced by how other founders do their jobs, and evenby the way they are portrayed in popular culture and the press as economic forces,business builders, innovators, risk takers, and virile competitors (Loasby, 2007; Miller,1983). In short, the entrepreneurial logic follows from the assumption of an entrepre-neurial identity. Its themes centre on commercial venturing and innovation, marketopportunities and competition, and above all, capital gains and growth for the firm andits investors (Thornton et al., 2005).

Strategy and performance. Given their social context, identities, and logics, we expect thatfirms dominated by lone founders will adopt a mission and strategy of growth. The classicnotion of a growth strategy has been much discussed in the strategy and entrepreneur-ship literature. It is associated with innovation, long term investment, market expansion,and ever increasing wealth for investors (Ansoff, 1965). A growth strategy has twocomplementary components – long term investment and financing that investment(Ansoff, 1965; Hofer and Schendel, 1978). Investments to develop the business includethose for R&D, promotion, and capital equipment (Davidsson, Delmar and Wiklund,2002; Hitt et al., 2002; Miller, 1983). They are funded by restricting dividend payments(Hofer and Schendel, 1978), debt financing, or keeping cash in the business (Hitt et al.,2002).

The question of whether any founder or family influence is due simply to majorownership or to ownership and management remains an open one. Certainly, founder

Table I. Lone founder and family orientations in public enterprise

Orientations Lone founder firm Family firm

Type of major owner or top executive Lone founder Member of founding familySalient social constituencies Business stakeholders and other

entrepreneursOther family owners, officers,

and membersRole identity Entrepreneur Family nurturerSource of legitimacy Growth, wealth accumulation Fulfilment of family needsLogic Entrepreneurial FamilialFavoured strategy Growth ConservationPerformance Superior shareholder returns Inferior shareholder returns




(or family) owners have the power to shape their organizations (Shleifer and Vishny,1997). It is possible, however, that a founder or family member occupying the position ofCEO also may have substantial impact (Miller et al., 2007). Thus we formulate ourhypotheses using major ownership alone, as well as service as CEO.

Hypothesis 1: Firms in which a lone founder is the largest shareholder or the CEO willbe associated with a growth strategy – one that pursues superior investments in R&D,promotion, and capital expenditures, embraces leverage, builds up cash reserves, andeschews dividends.

Growth strategies are said to be associated with higher levels of shareholder returns(Knight, 1921; Miller, 1983). An ample reflection of these results would be the cumula-tive total returns from share price accumulation (Hitt et al., 2002). More generous andmore far-sighted investment in the business allows a firm to build competencies and seizeopportunities. Moreover, a founder-owner whose self image and social approval are tiedto the success of the firm is apt to invest capital into projects that will benefit the businessand its investors (Kirzner, 1979). We are not arguing that profit margins necessarily willbe higher for growing firms as these are not the primary concern. Moreover costs can behigh during periods of growth. However, generous investments in innovation, marketdevelopment, and capital equipment can provide the foundations for growth for years tocome, and should lead to enhanced revenues and profits, and thus increasing share prices(Chandler, 1990).

Hypothesis 2: Firms in which a lone founder is the largest shareholder or the CEO willbe associated with above average returns to shareholders.

The Familial Orientation: Family Owners and Executives andtheir Businesses

Context, identity, and logic. The role identities, priorities and logics of family owners andowner-managers are expected to be shaped by their enduring and often intimate asso-ciations with other influential family members in the business. For these owners, focal

constituencies may be family members – parties who due to their kinship ties may exertdisproportionate influence (Nisbet, 1970). Thus interactions with family and regularexposure to their needs and demands may elicit a nurturing role identity (Burke andReitzes, 1981; Stryker, 1980, 1987; Ward, 2004). Indeed, a family agenda may becomesalient almost daily in the form of members’ expressed points of view, needs, values,emotional ties, and constraints. In a business, archetypal family desires and aspirationsarise concerning family careers, security, and rewards from the firm, and preserving thecompany for later generations (Miller et al., 2010). That family agenda becomes influ-ential through current and past social intercourse among family owners and executives;indeed the legitimacy and authority of the latter may derive in large measure from theirability to satisfy other family members (Bertrand and Schoar, 2006). A resulting familynurturing orientation reflects Friedland and Alford’s (1991) familial logic in which family

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needs rival economic purpose. Generosity thus may be accorded to family membersusing firm resources, even when those individuals contribute little to the business (Lubat-kin et al., 2007).

Strategy and performance. Strategy can be shaped by this agenda of providing stable, secureincome and even careers to family members, and preserving family control. Suchpriorities restrict the resources available to a firm, depriving it of funds to invest in thefuture (Landes, 2006). Also, in seeking to stabilize cash flows, they limit the capacity toassume risk. Thus a conservative investment and financial posture is taken – one thatdefines a ‘conservation strategy’ (Harrigan and Porter, 1983). First, is a reluctance toinvest aggressively in speculative or longer term initiatives such as research and devel-opment, promotion and advertising, and extensive capital expenditures (Bertrand andSchoar, 2006). As these investments may take long to pay off, they would deprive a familyof income, and risk family capital and control of the business. So would debt and largecash holdings – both of which are rendered unnecessary by the modest investment profile(Mishra and McConaughy, 1999). Instead of reinvesting profits, they can be distributedto the family (Dreux, 1990).

Hypothesis 3: Firms in which family members are the largest shareholders or serve asCEOs will be associated with a conservation (i.e. non-growth) strategy – one thatminimizes investments in R&D, promotion, cash holdings and capital expenditures,avoids leverage, and awards generous dividends.

Conservation strategies limit competency demands on family managers, reduce risk,and place more ample resources at the disposal of the family. They keep family membersfeeling secure and avoid initiatives that might jeopardize family control of the firm bycurrent and later generations (Dreux, 1990; Mishra and McConaughy, 1999). Spareliquid asset profiles also lessen the chances of hostile takeovers, while generous dividendsmay placate family and other shareholders. Unfortunately, sparse investment in thebusiness and its future is apt to diminish total shareholder returns. A dearth of investmentin innovation, market development, and capital equipment can hinder growth over theyears, limit future revenues and profits, and thus restrict increases in share prices.

Hypothesis 4: Firms in which family members are the largest shareholders or serve asCEOs will be associated with below average shareholder returns.

There is controversy in the literature regarding Hypothesis 3. Some scholars contendthat family owners, concerned with firm longevity and future generations, invest gener-ously in the business (Gomez-Mejia et al., 2007; James, 2006; Miller and Le Breton-Miller, 2005). But these studies are unsystematic and based mostly on private firms. Thuswhether family businesses favour conservation over growth is very much an openquestion. There is equal controversy surrounding Hypothesis 4. As noted, someresearchers believe that family firms outperform their peers along numerous measures,especially in the founder generation (Anderson and Reeb, 2003; Villalonga and Amit,2006). Other studies show that family firms do not out-perform and even may under-




perform (Bennedsen et al., 2007; Cronqvist and Nilsson, 2003; Pérez-González, 2006).Unfortunately, except for Miller et al. (2007), who looked only at market valuations, allprior empirical studies of public US family businesses of the founder generation con-found family founder and lone founder businesses. Our arguments concerning familialorientations apply only to the former as there are multiple family members who own thefirm and thus evoke familial agendas and sources of legitimacy. By contrast, where afounder has no family involved, the entrepreneurial logic is likely to apply.

Family Founders: Blended Orientations within Family Businesses

Entrepreneurial and familial orientations have been argued to pertain, respectively, toorganizations that are lone founder and family controlled. But what about firms that arecontrolled by a family founder – a founder who has other members of his or her familypresent as a major co-founder, owner, or executive. Within this special type of familyfirm, the social contexts, identities, and logics we have described may blend. Indeed,Glynn and Lounsbury (2005), Reay and Hinings (2005), and Thornton et al. (2005) makeclear that individuals and organizations may embrace multiple logics. This tendency maybe especially common where these parties act within several social spheres, and thusincorporate compound identities (Chung and Luo, 2008; Fiss and Zajac, 2004;Greenwood et al., 2010). Although most lone founders are expected to embrace theentrepreneurial logic, family founders may be influenced by both the institutions ofmarket-capitalism and family, and thus blend entrepreneurial and familial logics. Theseparties may identify with both entrepreneurial and family roles, viewing themselves asbusiness builders and family nurturers. As such, their strategic conduct, and the perfor-mance of their firms, will fall in an intermediate position vis-à-vis other family and lonefounder firms.

Firstly, family founders are entrepreneurs – they have established and grown theirbusiness. Therefore they take pride in that achievement and have demonstrated thevalues and capabilities that have enabled them to succeed in a context of marketcapitalism: that is apt to affect their assumption of an entrepreneurial identity andreference group (Tajfel and Turner, 1979). Moreover, they have built up extensiverelationships, and reciprocal loyalties, with non-family members associated with thebusiness – investors, bankers, employees, and clients, all of whom might well reinforce anentrepreneurial logic. Family founders’ sources of legitimacy and authority too are apt tocome in part from these parties. Thus a strategy of growth for the enterprise and itsstakeholders may hold some appeal for them.

However, unlike the lone founder, the family founder does have ties to other familymembers in the business – ties that, given the intimate and often emotional associationsbetween family members, may be especially important (Aldrich and Cliff, 2003). So thefamily too becomes a reference group. A family nurturing identity may loom large.Kinship involvement may also create demands to divert resources and accord perquisitesto the family, provide career opportunities for family members, and otherwise satisfyfamily owners who are close to the founder but more concerned with family rewards thanbusiness growth (Gersick et al., 1997; Lubatkin et al., 2007). In short, the familial

D. Miller et al.8


context, identity, and logic too will influence family founders via its symbols, sources oflegitimacy and authority, and reinforcing relationships.

Therefore the family founder, as a ‘man in the middle’, may incorporate and balancebetween the two contexts, identities, and logics. As a result, strategies will lie somewherebetween the poles of growth and conservation. In short, family founder firms will be lesslikely than lone founder firms, and more likely than other family firms, to embrace agrowth strategy, and hence less likely to outperform or underperform, respectively. Theirintermediate position may render them no different in their strategic orientations fromother public companies.

Hypothesis 5: Firms in which a family founder is the largest owner or serves as CEOwill be neither more nor less likely to adopt a growth strategy than other companies.

Hypothesis 6: Firms in which a family founder is the largest owner or serves as CEOwill be neither more nor less likely to outperform in shareholder returns than othercompanies.

METHOD

Sample

Our sample consisted of the Fortune 1000 (500 industrials and 500 service firms). Weanalysed data on 898 companies due to our restricting the sample to firms with publiclyaccessible data for the years 1996 to 2000; of these we identified 263 family firms, 141lone founder firms, and 492 ‘other’ firms. This breakdown is consistent with that foundby other scholars of major publicly traded American firms (Anderson and Reeb, 2003;Miller et al., 2007; Villalonga and Amit, 2006). Sample sizes varied somewhat with theuse of lagged variables and more restrictive ownership and management definitions oflone founder and family firms.

Variables and Sources of Data

Our variables were assessed at two levels and in two stages. First, we gathered data onindividual officers and directors, 5% block-holders, and large institutional investors.Information on share ownership, vote control, family and lone founder executive posi-tions, super voting shares, etc. was obtained from three or more sources for eachcompany: Compact Disclosure, individual company proxies (which were the primaryand definitive source of data), Hoover’s, and company websites. Wherever the proxieslacked information on kinship relationships between board members and managers, orofficers’ relationships with the family founder, we approached companies ourselves. Fortwo years, a team of five research assistants and three of the authors gathered data fromthe proxies. Two weeks of training were required for each research assistant as somefamilies controlled their firms via trusts and banks, and family names could change dueto marriage.

Following Anderson and Reeb (2003), Maury (2006), and Villalonga and Amit, (2006),we adopted as the focal family the one with the most votes. In summing family share-




holdings, we included shares of co-trustees of family trusts who were directly employedby the family. However, whereas previous researchers (e.g. Anderson and Reeb, 2003;Maury, 2006; Villalonga and Amit, 2006) designate firms like Microsoft and Amazon asfounder family businesses, we do not since there is no family involvement. Instead,because of their hypothesized different institutional logics, we classify them as lonefounder (or unrelated-founder in the rarer instances of multiple founders) businesses. Bycontrast, we do count firms such as Comcast and Qualcomm as family firms becausethere are multiple members of their owning families serving as major owners and officers.Lone founders had no relatives involved in their firm.

All data on individuals were aggregated to the firm level, at which we could also collectinformation on strategy, governance, and market performance. Accounting data aredrawn from Compustat, and market performance data were obtained from the Centerfor Research on Security Prices (CRSP). Our variables are listed and defined in Table II,along with their sources; descriptive statistics are presented in Table III.

For preliminary classification purposes, a firm was assigned to the broad lone foundercategory if it had a single or several unrelated owners who are founders and also officers,directors, or owners of more than 5 per cent of the shares, with no family membersinvolved. It was assigned to the broad family category where there were multiple membersfrom the same family who are officers, directors or >5% owners, contemporaneously oras descendants (mean family ownership of family firms was almost 20 per cent). We studied

only lone founder and family businesses in which the lone founder or the family were (a) the largest

shareholders in the company, or (b) served as CEOs to ensure that these parties could have significant

impact. For family firms, we also distinguished those firms where the family founder wasstill present from other family firms. In all instances the comparison sample was othernon-family and non-founder firms on the Fortune 1000.

Models

Dependent variables. Our composite strategy variable is a growth/conservation continuum.Based on the literature on growth and conservation strategies discussed above (i.e.Davidsson et al., 2002; Harrigan and Porter, 1983; Henderson, 1979; Hofer and Schen-del, 1978; Kirzner, 1979; Porter, 1980, pp. 267–74), we assessed the composite indexaccording to the following six variables: R&D/sales, advertising/sales, investment(capital expenditures/property, plant, and equipment), financial leverage (debt/debt +equity), cash holdings (cash + liquid assets/property, plant, and equipment), anddividends/earnings. Given the anticipated negative relationship between dividends andthe other components, that last variable was subtracted. There were few missing valuesfor most variables, except for advertising and R&D. Here, missing values were coded as0, as firms were required by law to report these expenditures wherever they weresignificant. All variables were assessed for skewness and kurtosis, and where necessarywere either log transformed and/or their outliers were converted to their respectivevariable’s 99th or 1st percentile, as appropriate. All variables were standardized beforebeing summed for inclusion into the growth/conservation measure.

As strategy composites were derived from prior theory rather than empirically, theirstatistical properties were evaluated. The inter-item correlation alpha for the growth/

D. Miller et al.10


Table II. Variable definitions

Variable Definition

Lone founder largestowner

A binary variable, 1 indicates that a lone founder is the largest shareholder in the firm.Source: Compact Disclosure; firm proxy.

Family largest owner A binary variable, 1 indicates that a family is the largest shareholder in the firm.Source: Compact Disclosure; firm proxy.

Family founderlargest owner

A binary variable, 1 indicates that a family is the largest shareholder in the firm andthat the founder serves as a >5% owner or officer. Source: Compact Disclosure;firm proxy.

Other family largestowner

A binary variable, 1 indicates that a family is the largest shareholder in the firm andthat the founder is no longer present in the firm as a >5% owner or officer. Source:Compact Disclosure; firm proxy.

Lone founder CEO A binary variable, 1 indicates that a founder holds the title of chief executive officer(CEO). Source: Compact Disclosure; firm proxy.

Family CEO A binary variable, 1 indicates that a family member holds the title of chief executiveofficer (CEO). Source: Compact Disclosure; firm proxy.

Family founder CEO A binary variable, 1 indicates that a family founder holds the title of chief executiveofficer (CEO). Source: Compact Disclosure; firm proxy.

Other family CEO A binary variable indicating that a family member other than the founder holds thetitle of chief executive officer (CEO). Source: Compact Disclosure; firm proxy.

Growth/conservationstrategy

Sum of standardized scores for R&D, advertising, investment, leverage, and cashholdings minus dividend payout ratio. Conservation is taken as the opposite polarityto growth. Source: Compustat.

Research &development

Research and development expenses divided by total sales. Source: Compustat.

Advertising Advertising expenses divided by total sales. Source: Compustat.Investment Capital expenditures divided by plant property and equipment. Source: Compustat.Leverage The sum of long term debt plus debt in current liabilities divided by the sum of long

term debt plus debt in current liabilities plus the book value of common equity.Source: Compustat.

Cash holdings Cash plus short term investments divided by plant, property, and equipment. Source:Compustat.

Dividends toearnings ratio

The sum of common and preferred dividends divided by operating income beforedepreciation. Source: Compustat.

Total shareholderreturns

TSR represents a firm level market performance measure obtained by compoundingeach firm’s daily market returns in its respective fiscal year. Source: CRSP.

Firm age The difference between the year 2000 and the firm’s founding year. Source: firmproxy; firm website; Lexus-Nexis; Hoovers.

Log of sales The natural log of annual net sales. Source: Compustat.Inside directors ratio The ratio of inside directors to total directors. Source: firm proxy.5% owner The ownership percentage of all non-family or non-lone-founder block-holders who

hold a 5% or greater ownership stake. Created by summing the non-family ornon-founder 5% or greater ownership stakes and dividing this by the firm’s totalshares outstanding. Source: Compact Disclosure; Compustat; firm proxy.

Supershares A dummy variable set to equal 1 when a firm has a vehicle in place which creates adifferential source of power. Example: differential voting over various classes ofstock. Source: Compact Disclosure; firm proxy.

Beta (market risk) The average value weighted returns in which the firm’s daily returns are regressedagainst the returns of the overall market. Source: CRSP.

Debt to equity ratio Long term plus short term debt divided by the market value of common equity.Source: Compustat.




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Deb

t/eq

uity

0.59

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.

D. Miller et al.12


conservation composite was 0.51, which is deemed very acceptable for any broadorganizational construct with conceptually distinct terms (Van de Ven and Ferry, 1980,pp. 78–81). This composite should be viewed as a summative index rather than aunidimensional construct. However, given the breadth of the composite, we also presentsummary results for each of its components in Table VI, based on models incorporatingthe same control variables as employed in Table IV. Performance hypotheses wereassessed according to total shareholder returns. The variables are defined in Table II.

Predictor variables. As predictors we used each of the previously defined dummy indicatorsof lone founder and family ownership and management. To test Hypotheses 1–4 weemployed a dummy to indicate only firms in which the family or the lone founders werethe largest shareholders in the firm. To assess robustness of the findings we also testedthese hypotheses where the founder or a family member served as CEO. In order tofurther test robustness we also used family and lone founder share ownership and votecontrol hurdles of 20 per cent each. To test Hypotheses 5 and 6, we selected only familyfirms in which the family founder was present.

Control variables. Strategy may well be a function of the industry the firm is in, as well asits age and size. For example, conservation strategies may be more common in stableindustries, among larger firms, and in older businesses (Porter, 1980). For growth strat-egies, the opposite is apt to be the case (Miller, 1983). Thus each of the models testingstrategy Hypotheses 1, 3, and 5 control for these factors: namely industry at the two-digitSIC level, firm age, and the natural log of sales. It is particularly important to control forage and size as these aspects of the corporate life cycle may influence a firm’s growth rate.The models controlled as well for governance factors. These included the presence ofinside directors and of major (5%) non-family or non-lone founder block-holders, eitherof whom might bring a business- as opposed to a family-perspective to the board (Shleiferand Vishny, 1997). We also controlled for the use of special voting shares (‘supershares’)which augment family or lone founder control without corresponding ownership(Maury, 2006; Morck et al., 2005). Finally, we incorporated firm beta – or market risk,often associated with growth orientations. Following Anderson and Reeb (2003) andVillalonga and Amit (2006), our models assessing performance Hypotheses 2, 4, and 6control for the above variables as well as two others: investment (capital expenditures/property, plant, and equipment), and debt/equity.

Analyses and Robustness

Tables IV and V present our time-series, cross-sectional findings, reporting results fromgeneralized estimating equation models (Liang and Zeger, 1986; Zeger et al., 1988).These panel models were especially appropriate given the temporal stability of thepredictor dummies (Liang and Zeger, 1986). They also incorporate Huber–White clus-tered standard errors to control for unobserved firm fixed effects and adjust for firm-specific autocorrelation (Peterson, 2009). As the models are not maximum likelihood,chi-square is the only available goodness of fit measure. All models are statisticallysignificant at beyond the 0.001 level. Also, wherever the hypothesized predictors are




Tab

leIV

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tsof

time

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ress

ion

ofgr

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stra

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vern

ance

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odel

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el3

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odel

4:

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H3

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H5

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ner

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mily

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95)

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D. Miller et al.14


Tab

leV

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0.15

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significant, the full models also show statistically significant increases in chi-square overnested models without the hypothesized predictors.

To establish the robustness of the time series findings of Tables IV and V, we ranparallel OLS models using five-year averages of the same variables. Fixed effects modelswere inappropriate given the stability of our governance predictors over the five-yearperiod of analysis. The OLS models (available from the authors) incorporate only firmswhose ownership status did not change over the five years of data. Where hypothesizedcoefficients were significant in the predicted direction for the panel analyses of Tables IVand V, all were also significant in the predicted directions for the OLS analyses. Resultswere also confirmed when we used family and lone founder ownership and vote controlhurdles of over 20 per cent, and when we stipulated major ownership and serving as CEOas joint role criteria.

Survival bias and endogeneity may arise in examining the relationships betweengovernance and performance. Not only may governance influence performance, good orpoor performance might also cause a change in governance – the sale by a family or lonefounder of the business, for example. Thus, following Greene (2003, pp. 787–90), wechecked and controlled for endogeneity in our analyses using Heckman two-step treat-ment effect regressions for all our indicators of lone founder- and family-ownership andmanagement. The first stage of the procedure is a probit analysis that regresses the firmgovernance dummies against variables that distinguish among lone founder, family, andother businesses. Following Miller et al. (2007) and Villalonga and Amit (2006), thesepredictor variables include supershares, firm age, sales growth, debt to equity, two-digitSIC dummies, and the average age of directors. To establish robustness we varied thepredictors for the probit analyses by dropping director age, growth, and beta. This didnot significantly change the results. The second stage of the Heckman procedureregresses our dependent variables on the predicted values from the first stage, adjustingall errors for the two-stage estimation process. The Heckman results confirmed those ofTables IV and V, except that in the latter, family founder CEOs showed performancethat was significant at beyond the 0.05 instead of beyond the 0.10 level (the detailedanalyses are available from the authors).

In order to further check for sample selection bias we gathered data from a randomsample of 100 smaller, non-Fortune 1000 companies. The random sample was takenfrom the Compustat database for the year 2000 from a universe of almost 5000 publiclytraded firms. Random numbers were used to select 100 of these firms. Means werecalculated for the strategy and performance variables for lone founder, family, and otherbusinesses, and means comparisons were run against the corresponding categories of theFortune 1000 (the exact findings are available from the authors). An important concernregarding a Fortune 1000 sample is that these firms have been unusually successful, andthat, at least the lone founder firms, which tend to be younger, have grown especiallyrapidly. We found that the differences between the Random 100 sample and the Fortune1000 in performance and strategy means were mostly non-significant for lone founder,family, and other categories. Specifically, the lone founder, family, and other categoriesdid not differ significantly between these samples along total shareholder returns. For thegrowth/conservation strategy dimension, there is no significant difference for family orlone founder businesses between the samples. These findings help to allay the general

D. Miller et al.16


concern that the Fortune 1000 sample is unrepresentative, and the fear that the lonefounder category of the Fortune 1000 shows an inflated tendency towards growth. Thisis not to say, however, that readers should take our results as applying to smallercompanies. Further research would be needed to establish that.

A number of further measures were employed to establish the robustness of ourfindings. Multiple indicators for ownership and management were investigated. Forexample, we ran all analyses for the Chairman and CEO-Chairman positions using thesame control variables as on Table IV. But these findings were so close to the CEOresults we report that we refrain from presenting them. We also systematically varied oursets of control variables: specifically, beta, and supershares individually were addedto/deleted from our models with no material changes in the findings for the hypotheses.

Finally, we ran models for each individual component of our strategy composite, usingthe same control variables as in Table IV. The results are summarized in Table VI, andshow significant convergence. In summary, the majority our findings were consistentacross different sets control and component variables, and across different types ofanalyses (cross-sectional, panel, and treatment regressions). Any material differences arereported in our results and discussed.

FINDINGS

Tables IV and V present our findings for strategy and performance, respectively. Thecoefficients reported are from time-series cross-section regressions (random effectsmodels with robust standard errors). The two-digit industry SIC dummy variables weresuppressed to save space.

Hypotheses 1 and 2. It was hypothesized that, following an entrepreneurial logic, busi-nesses in which lone founders were the largest shareholders would adopt growth strate-gies and outperform. Tables IV and V confirm that finding – specifically they showfounder owned firms in which the founder is the largest shareholder to be more apt toembrace growth strategies than other Fortune 1000 firms (Model 1 of Table IV) and alsoto outperform in shareholder returns (Model 1 of Table V). When we relaxed the largestshareholder requirement, and stipulated that a lone founder serve as CEO, the findingsagain were confirmed (Model 2 of Tables IV and V). In examining the disaggregatedcomponents of the growth strategy (Table VIa), it appears that lone founder firms doindeed invest more generously in their infrastructures; they also pay less dividends andaccumulate more cash. They do not, however, engage in more R&D, nor employ moreleverage than the average Fortune 1000 firm. Their growth orientation, therefore,appears to avoid these more risky initiatives.

Hypotheses 3 and 4. Hypothesis 3 stipulated that, following a family logic, firms in whichthe family was the largest shareholder would be more prone than other firms to pursueconservation strategies (i.e. less apt to pursue growth strategies). Model 1 of Table IVconfirms that, and Model 2 of the table confirms that the hypothesis is also supportedwhen a family member serves as CEO. Table VIb suggests that unusually generous




Tab

leV

I.R

obus

tnes

sch

ecks

and

sum

mar

yof

resu

ltsby

com

pone

ntva

riab

lesa

(a)

Lon

efo

unde

rbu

sine

sses

(b)

Fam

ily

busi

ness

es

H#

Dep

ende

ntva

riab

les

Hyp

othe

size

d

com

pari

sons

Big

owne

r

CE

OH

#H

ypot

hesi

zed

com

pari

sons

Big

owne

r

CE

OH

#H

ypot

hesi

zed

com

pari

sons

Fou

nder

owne

r

Fou

nder

CE

O

Str

ateg

y

1H

1G

row

thst

rate

gyH

ighe

rY

YH

3L

ower

YY

H5

Ave

rage

YY

2R

&D

Hig

her

NN

Low

erY

YA

vera

geY

Y3

Adv

ertis

ing

Hig

her

NN

Low

erY

NA

vera

geY

Y4

Inve

stm

ent

Hig

her

YY

Low

erN

NA

vera

geN

Y5

Lev

erag

eH

ighe

rN

NL

ower

YY

Ave

rage

YY

6D

ivid

ends

Low

erY

YH

ighe

rY

YA

vera

geY

Y7

Cas

hH

ighe

rY

YL

ower

NN

Ave

rage

YY

Per

form

ance

8H

2T

SRH

ighe

rY

YH

4L

ower

NN

H6

Ave

rage

YY

Not

es:

aY

indi

cate

sth

atth

ehy

poth

esis

issu

ppor

ted,

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lack

ofsu

ppor

t.A

lltim

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ries

/cro

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nm

odel

sin

row

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atis

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pred

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corr

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odel

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Tab

les

IVan

dV

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lres

ults

for

the

TSC

San

dH

eckm

anm

odel

sar

eav

aila

ble

from

the

auth

ors.

D. Miller et al.18


dividends, reduced financial leverage, and below-average R&D and advertising expen-ditures were unusually common among family firms. Low levels of cash and investmentwere less in evidence. Overall, then, family businesses favour conservation over growth.

Hypothesis 4 stipulated that firms in which a family was the largest owner wouldunderperform in returns to shareholders. This hypothesis was not supported for thefamily as major owner condition, nor when a family member serves as CEO. Specifically,Models 1 and 2 of Table V show that family businesses do not underperform in share-holder returns, nor do they outperform. The reasons for sustaining at least averageperformance may, in part, be ascribed to the advantages of closely held companies whereinfluential family owners are better able to control managerial opportunism – or engagein more functional forms of conservatism.

Hypotheses 5 and 6. Firms run by family founders were expected to be subject to bothentrepreneurial and familial logics, and hence Hypotheses 5 and 6 stipulated that thesefirms would fall between lone founder owned and family owned enterprises in theirstrategic and performance orientations. Models 3 and 4 of Table IV indicate that thefirms of family founder-owners or family founder-CEOs do not differ from other Fortune1000 firms in their growth orientations. That is, they fall between lone founder and otherfamily firms in that regard. However, according to Table V, Model 4, when the familyfounder stays on as CEO, performance is superior – albeit only at the 0.10 level (0.05 inthe Heckman analyses). The founder effect appears to be of some significance, not onlyin lone founder but family founder businesses. When the founder is no longer CEO, theperformance advantage disappears, and strategies once again are those of conservation(see ‘other family’ rows in Model 4, Tables IV and V).

The results suggest that the effects of major ownership and of CEO roles were largelycomparable. The logics embraced, in other words, might well accrue under both majorownership and management positions. Founder presence also seems to have someimpact, as the departure of the founder CEO in family firms appears to presage atransition towards familial as opposed to entrepreneurial logics – and hence towardsconservation strategies (Table IV, Model 4). Perhaps this is because post-founder familyCEOs have never acted as entrepreneurs or business builders, and often serve at the willof the family, and hence the entrepreneurial logic does not apply (Gersick et al., 1997;Ward, 2004).

DISCUSSION AND CONCLUSION

Governance

The literature on corporate governance has for many years debated the impact onperformance of different levels of ownership concentration and of owner-management(Shleifer and Vishny, 1997). Using an agency framework, it has argued that concentratedownership and owner-management contribute positively to performance. The theme ofthat work has been the ability of powerful owners to reduce agency costs in their pursuitof economic self-interest ( Jensen and Meckling, 1976). Unfortunately, these analyseshave produced conflicting empirical findings. Some studies suggest superior returns from




concentration, others do not (see the reviews by Morck et al., 2005 and Shleifer andVishny, 1997). Indeed, even within the class of public family enterprises there is significantdebate about whether these concentrated firms outperform – or underperform (compareAnderson and Reeb, 2003; Maury, 2006; Miller et al., 2007; Pérez-González, 2006;Villalonga and Amit, 2006). More recent work on family firms has indicated thatdifferent types of owners and executives may perform differently – for example, lonefounder firms experience higher market valuations than family and family founder firms(Miller et al., 2007). But performance is measured purely according to market valuation,strategy is ignored, and nothing is said to resolve discrepancies across studies.

Our thesis was that these discrepancies were due to the failure to distinguish amongthe social contexts of different types of owners and executives, and the effects thesecontexts might have on the role identities and institutional logics of those parties. Weargued that such distinctions might explain differences in strategy and performance.Specifically, family owners and CEOs were expected to adopt family nurturing identitiesand familial logics; lone founders would adopt entrepreneurial identities and logics. Theconsequences would be conservation strategies and mediocre returns for family firms,and growth strategies and out-performance for lone founder firms. Family founders wereargued to mix these identities, logics, and outcomes. These expectations were largelyborne out by our research.

We found that lone founder businesses pursued a strategy of growth and earnedsuperior shareholder returns. These findings obtained when the founder was the biggestowner or the CEO. By contrast, family businesses pursued a conservation strategy andgarnered average total returns for shareholders. Again, these findings emerged whetherthe family member was the largest owner or the CEO. A strategy that fell between thepolarities of growth and conservation pertained to family-founders, who marginally didoutperform, albeit not to the extent of lone founders. Clearly, it is time to go beyondeconomic models of self-interest and agency and to employ richer social conceptions ofactors playing key governance roles.

Our findings that family businesses do not outperform contradict earlier studies: thosethat claim family businesses do outperform (Anderson and Reeb, 2003; McConaughyet al., 1998; Villalonga and Amit, 2006), and those that claim they underperform(Bennedsen et al., 2007; Bloom and Van Reenen, 2007). Again, those studies hadadopted an agency logic that fails to distinguish family founder firms from lone founderfirms. We have argued for the importance of such distinctions as they demarcate a clearcontrast in social context. As noted, and consistent with their respective entrepreneurialand familial orientations, only lone founder firms outperform; family firms do not.

Our finding that family firms do not significantly underperform also challenges scholarscondemning family business nepotism and entrenchment (e.g. Claessens et al., 2002;Pérez-González, 2006). Families do tend to pursue conservation strategies, but do notnotably penalize their public shareholders as a result, at least not vis-à-vis non-lonefounder firms. A philosophy of nurturing the family apparently does not jeopardize theviability of the firm.

Our findings suggest that family involvement in a public family business may at timesbe limiting. If family demands are the challenges this research suggests they are, it will beuseful for enterprises to limit family involvement to relatives who place a business agenda

D. Miller et al.20


above that of a family agenda, and have sufficient expertise to master their jobs. Unfor-tunately, the painful issue of pruning unproductive or problematic family members froma firm has been neglected by scholars. Yet pruning and instilling meritocracy may be akey priority, especially in competitive environments in which conservation strategies willalmost guarantee stagnation. Useful remedies are indicated by some European familyfirms that have their family shareholders elect one or two expert representatives to serveon the board. Then all family shareholders vote every few years for the representatives,but otherwise have little involvement with the company (Landes, 2006). Firms also canhire top executives from outside the family, especially after the founder has gone(Bennedsen et al., 2007).

Our choice of the Fortune 1000 sample was notable. It is a useful sphere within whichto study the blending of family and market logics because it has been deemed to be sodominated by a quintessentially market regime (Morck et al., 2005). Whereas it wouldcome as no surprise to detect manifestations of family logic in small firms owned,managed, and populated by families, that is less true of major corporations with signifi-cant public ownership and ‘professional’ management. Indeed, investor safeguards toenforce market discipline within American stock exchanges are said to be among the bestin the world (Shleifer and Wolfenzon, 2002). There, then, is where the market logicshould reign – especially given today’s obsession with quarterly earnings and shareholderprotections ( Jacobs, 1996). Thus any manifestations of a familial logic that qualifies oreven overrides market logic in such a context is especially significant.

Institutional Logics

Our research sheds light on a central debate in the corporate governance literature. Butit also extends the application of institutional logics to that domain. Moreover, it standsout from most of the previous work on logics in several ways. First, the study of logics hascentred mostly on the institutions of capitalism and the professions, and underplayed therole of the family. Yet in family firms the family institution – and the familial logic towhich it may give rise in particular contexts, can be decisive in determining actors’ roleidentities, sources of legitimacy and authority, and values and missions – even in large,mature public companies (Chung and Luo, 2008; Greenwood et al., 2010).

Earlier work on logics has been concentrated at the level of organizational fields suchas professional service firms (Greenwood and Suddaby, 2006), healthcare organizations(Galvin, 2002; Reay and Hinings, 2005), and publishing houses (Thornton, 2004), and ithas focused on logics adopted at a more impersonal organizational level. By contrast, ourstudy encompasses a wider swath of firms in many different industries, and distinguishesthem on the basis of broad governance regimes that span many fields and impinge quitedirectly on the social context of major personal owners or executives. Thus the emphasisis on societal logics that take effect at the level of the individual actor. This takes us backto the original emphasis of Friedland and Alford (1991).

It would be unwise to conclude from the results of this study that the market institutiondoes not impact family owners, or that the institution of the family does not shape thebehaviour of even the most entrepreneurial founders. Individuals’ identities and theirlogics are influenced by multiple institutions, and moulded in various degrees by each of




them. The institutional factors impinging on an individual via roles, values, andstructural and historical circumstance will determine the balance of logics reflected inbehaviour.

Limitations and Future Research Directions

Methodological issues. There are a number of limitations to the current research. First, anystudy of public corporations is biased. It does not reflect the behaviour of privatecompanies, and many family businesses are just that. It is also true that firms that havemade it onto the list of the Fortune 1000 are special: already they have in some senseoutperformed companies that have not made it onto the list. Thus care must be taken notto generalize our findings beyond large US publicly traded firms. In particular, ourconclusions may not apply to smaller, younger, and private companies. Where familieswholly own and run smaller businesses, their association with the business may be quiteintimate, thereby fostering a nurturing attitude that husbands resources more carefullyand tilts the strategic balance towards growth (Miller and Le Breton-Miller, 2005). Thereis also the issue of survival bias, for which our methods can only imperfectly control.

Our measures of ownership and family involvement were limited. First, there mayexist partners and family owners who possess fewer than 5 per cent of the shares of a firmand do not serve as officers or directors. Given statutory reporting requirements in theproxies, those individuals were invisible to us and so our estimates of family ownershipare almost certainly low. Also, our measures of strategy were truncated as we did nothave available to us information on goals, culture, human resources policies, and func-tional orientations that would provide a more complete picture of strategic conduct. Amore focussed field study might address these gaps.

Conceptual issues. We cannot prove that our findings are a direct result of contrastingsocial contexts, identities, or logics. Unfortunately, like many studies, our research suffersfrom an inability to discern the micro-processes that cause contexts to mould roleidentities and logics (Thornton and Ocasio, 2008, p. 120). More work needs to be doneto identify the cognitive, normative, and political forces that influence how roles andlogics are adopted. Identity theory and social identity theory may offer important insightshere – insights that require a more fine-grained study of social interaction, and theprocesses driving role identification and role salience (Burke, 1980; Burke and Reitzes,1981; Hogg et al., 1995; Stryker, 1980). In the family context, long term emotionalconnections with family members inside and outside the business may have an importantimpact on the worldviews, loyalties and priorities of family members. But it would beuseful to study just how and why this happens – to what degree does it rely on com-monality of background and education, frequency of interaction, family harmony andcloseness, personality, or purposeful socialization? The question of how and why lonefounders assume their identities and logics is just as complex. To what extent is theentrepreneurial role and logic embraced as a function of career background, projectiveidentification, or associations with investors and venture capitalists? And are theseentrepreneurial role identifications or ‘self-categorizations’ with a more abstract, physi-cally remote group (the set of entrepreneurs) more driven by social attraction than social

D. Miller et al.22


interaction (Hogg et al., 1995, p. 263). These are all issues that require study to establishthe fine grained details of our broad arguments.

ACKNOWLEDGMENTS

The authors are grateful to Professor Ken Craddock for his useful contributions. They would also like tothank Sadia Chowdhury, Luc Farinas, Tim Holcomb, Carla Jones, and Soranna Pramualmitra for their helpwith the data gathering. They are pleased to acknowledge support from the Social Sciences and HumanitiesResearch Council of Canada.

NOTE

[1] Agency theory concerns the power to optimize self-interest, and it assumes economic self-interest as theprimary motivator. As such it ignores that actors may define interest in different ways (Gomez-Mejia andWiseman, 2007; Schulze et al., 2001). Notably, it ignores the fact that ‘interest’ is in part socially defined,and thus that actors may be motivated differently because of their structural and social positions.

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