Family member behaviour and motivation; exit, voice, and loyalty model

Research on family ownership provides important insights into the behaviours and motivations of family members. Karlsson Stider (2000) mentions two different strategies for owners to communicate dissatisfaction with company management: voice and exit. According to her, voice is when the owner decides to get more involved in the company’s management to change it in the preferred direction, while exit is a strategy when the owner chooses to sell some part of or his or her entire holdings in the company. Hirschman (1970) suggests that the family member may choose between three different alternatives: exit, voice, and loyalty (see Table 6).

Table 6. Exit, voice, and loyalty within the family business context

Exit E1: Constructive exit

E.g. After succession, partial ownership changes in the family E2: Angry exit E.g. After interpersonal or inter-family crisis

E3: Entrepreneurial exit

E.g. Starting a new personal business separate from the family business

Voice V1: Constructive voice

E.g. The person participates in decision-making; represents the family, CEO, chair, etc.

V2: Critical voice E.g. Power struggles in the family firm; successor–successee disagreements

V3: Entrepreneurial voice

E.g. Starting up new businesses on the family business platform, possibly involving other members of the family;

building joint ventures Loyalty L1: Loyal silent

support

Staying an owner without participating in management;

becoming a team entrepreneur without an explicit role L2: Loyal silent

resistance

E.g. Person chooses to neglect the business L3: Loyal

responsibility

E.g. Assuming the steward’s role; can include stewardship towards the family legacy or positive entrepreneurial stewardship behaviour, developing the family business L4: Loyal forced

participation

E.g. forced entrepreneurship; being involved without the possibility to choose (children as owners; the only child syndrome); being involved in the business to enable family contact (social reasons); legacy reasons, jurisdictional reasons

In terms of exit, the person’s leaving the family business may take three basic routes:

after a well-managed succession process, the family members agree on the successor of the business, and the other family members step away to give the new management/ownership the required space for individual entrepreneurship. This type of exit is by nature very

‘constructive’ – it seeks to promote the survival of the business and is very likely to benefit all the exiting members as well in terms of monetary compensation or the like. A constructive exit can include aspects of entrepreneurship on the part of the exiting members as well: the compensation could comprise parts of the business, or monetary compensation can work as the starting capital for a new business venture. An exit can be also the result of a conflict within the family business. In family businesses, interpersonal or inter-family conflicts have been reported and analysed by many scholars (Harvey and Evans, 1994; Cosier and Harvey, 1998; Handler, 1991). In many cases, the conflicts have been resolved through arrangements where one or more members of the family leave the family business. The exit does not necessarily suggest the leaving person’s low entrepreneurial spirit; on the contrary, the original reason for the conflict may also arise from the family members’ different attitudes towards entrepreneurial projects or risk. Finally, an entrepreneurial exit may arise not from survival of the original family business nor conflicts within the family business, but from the personal entrepreneurial endeavours of a family member setting off to start something on his or her own.

In addition, the use of voice can be identified in several ways in family businesses. The most usual manifestation of voice would be the family member’s active participation in decision-making, possibly representing the family and supporting the family’s thinking in the business. In constructive voice, the main orientation is not criticizing, but playing an important role in the decisions regarding the family and the business. This could mean bringing new insights into discussions or taking initiative in discussions on the business and its development, or on the relationship between the family and the business, or other issues.

Thus, a family member as CEO or chairman of the board would typically assume the constructive mode of voice. In Hirschman’s typology, voice emphasises criticism of the business, the organization, or the management. In a family business context, critical voice could be identified as, for instance, power struggles within the family or as difficulties in the succession process. In family businesses, long-lasting disagreements and conflicts are rather common and may stem from some family members’ dissatisfaction with the way the business is managed or owned. On the other hand, these dissatisfied family members do not want to

exit, so they choose to stay with the business and criticize the current practices from the inside. The presence of critical voice could potentially work as a starting point for family business development, but on the whole it is unlikely that critiques will lead to major changes.

Instead, the constant prevailing critique is bound to cause unrest and difficulties in personal relationships. The third mode of voice, entrepreneurial voice, has a close resemblance to intrapreneurial behaviour – that is, the person actively takes part in the internal development of new ventures and businesses within the family business context. Through this, the person feels enough freedom to exercise his entrepreneurial aspirations.

Finally, four patterns of behaviour can be identified in the loyalty mode. Loyal silent support refers to those family members that do not assume an active role in the family business, but who, by their presence, lend their support to the family members who bear that responsibility. Typically this mode could be found in family businesses where the parents assume the active roles and the children – while being part-owners – remain in the background with regard to decision-making. Loyal silent resistance mode is related to those family members who for personal reasons, for instance, decline to be in contact with the business, even if they are part-owners. For example, after family conflicts or difficult succession processes, some family members may feel neglected and choose to stay both functionally and emotionally disconnected from the family business.

A person’s loyalty to the family business can stem from responsibility. In loyal responsibility mode, the person may assume the steward’s role towards the family legacy.

Loyal responsibility mode includes strong positive tendencies: entrepreneurial stewardship behaviour that develops the family business. Finally, loyalty mode includes a curious form:

loyal forced participation. This form would include situations such as children as owners and being involved without any real opportunity for choice. In the case of being the family’s only child, involvement in the family business does not seem voluntary, but more of a must. Loyal forced participation would also take place in the case of family members being involved in the business to maintain family contact (social reasons), a perceived need to maintain the family legacy, and various jurisdictional reasons. Considering the individual family members’

entrepreneurial behaviour is warranted by the need to more fully understand development of the family business and the development of family business portfolios.

In the context of family businesses, the individual family member can be seen as a person weighing his or her options. The person not only is a member of the family; he or she is also an individual with original ideas, entrepreneurial spirit, and willingness to make a difference in the family business. The concepts of exit, voice, and loyalty refer to alternatives that a member of a business system has in relationship to the system. That is, if a person perceives that there is a mismatch between his or her own goals and the goals or level of performance of or benefits delivered by the organization, the person can choose to exit or use voice and actively seek to repair the problem. Loyalty refers to the person’s choice to stay within the business structure and support it. This pattern of behaviour has a resemblance of stewardship behaviour. In family businesses, long-lasting disagreements and conflicts are rather usual and may stem from some family members’ dissatisfaction with the way the business is managed or owned.