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Anger, pride, guilt, regret… what role do emotions play in family firms?

Rania Labaki

House of Gucci, Succession, Family Business, Inheritance… For decades, family firms and their emotions have been depicted like fictional characters, often for the worse. Behind this simplified and…

House of Gucci, Succession, Family Business, Inheritance… For decades, family firms and their emotions have been depicted like fictional characters, often for the worse. Behind this simplified and sometimes false image, the reality of these firms is less “passionate”, more nuanced and prosaic. We know these companies are everywhere, as one can be directly part of the family firm, or work for or with them. Yet their internal workings, especially emotional, are little known. Two researchers at EDHEC Business School working in the Family Business Chair, have shown recently just how untrivial this question is and how it influences economic realities and human relations in the business world. Positive and negative emotions arise, whether in relation to the moral responsibility of the generations or to the protection of one’s own, and they are far from clichés. How are economic and emotional issues connected in family firms? To what extent do these emotions have a history and form particular patterns? Do the ties that bind families in the private sphere and the emotions that arise from them spill over into the professional sphere?

Family firms today: economic and emotional issues

Family firms represent between 75% and 95% of firms in the world according to the definition used here. In the European Union, these firms supply about 50% of jobs; while most are small local enterprises handed down from generation to generation, the others are large national and international companies. Fabian Bernhard, Associate Professor at EDHEC and member of the Family Business Chair team, has described this diversity: “regardless of their size and reputation, emotions flow across the more or less permeable boundaries of firms and families, more or less consciously”.

These flows and their effects differ, however, depending on the family business archetype. Rania Labaki, Associate Professor at EDHEC and Director of the Chair, identifies three main categories: “In the ‘Enmeshed’ family firms in which the family and the firm are one, family emotions are an integral part of the firm’s decision making and vice versa. ‘Disengaged’ families, are characterised by weak interaction between the firm and the family: emotions have practically no impact. ‘Balanced’ families, whose boundaries are semi-porous, succeed in capitalising on family emotions in a measured way, to ensure family harmony and the continuity of the firm.” (1)

But what emotions are we talking about? Some of them are negative from a semantic point of view, but not from an economic one. Bernhard explains: “a negative emotion like anger can be a reason to encourage change, a key ingredient in creative and entrepreneurial behaviour.” (2) Yet, as Labaki stresses, “from the economic reality of family firms (theirs and that of their trading partners) to the consequences of emotions, risk taking, innovation and proactiveness – which perpetuate the entrepreneurial direction – rest above all on family cohesion.” (3) The emotional issues thus resonate with the economic issues as well as with the family and the business strategies.

Are emotions a dialogue between the past and the future?

Like the mental demands of daily life, it is interesting to ask how the emotional burdens of the past in a family firm can influence relationships and strategic decisions. In Bernhard’s analysis, “reprehensible acts committed in the past by the company can provoke strong emotions such as guilt and shame.” (4) Guilt can block decisions for several years, but can then become a driver of change, when the new generation commits to making a break with past practices. “Our research shows that emotions experienced by the new generation, following past wrong-doings by the previous generation determine future behaviour within the firm, which is particularly responsible” (5) Labaki says.

“However, this is not a matter of casting blame on ancestors at the risk of insulting the future, but rather of showing that the times were different, as were the decisions”, Bernhard adds. For Labaki, “above all, the strength of the family history is inscribed in the company’s survival and is a source of company pride.” From small local firms that have influence on employment from generation to generation, to the large groups and families who keep their family affairs private and do not display their emotions to the public or to their front-line employees, pride is felt differently. It can be kept within the group, a secret beyond its boundaries, or it can be external, and directed at the wider community.

The notion of the future within the emotional is found in the feeling of responsibility towards the next generations. This is true both within the family – what inheritance? which heir? what continuity? – and for the company as a whole. A form of industrial paternalism can thus appear when crises threaten the established order, so as to redress the balance and even to retake a certain control.

Sentiments and resentments in decision making

Management by emotions in family firms entails the risk of confusing categories. As Labaki explains, “emotional norms can be perceived differently by the various members of the family. When, how, where, and why should certain emotions be expressed, with what intensity and in what ways? These are all very important questions for achieving optimal management and governance of family emotions within family firms because their impact is real.”

So, in daily management and strategic projections, it is important to know what impact intra-familial relationships and feelings have on partners and clients and their feelings. Bernhard stresses that “the emotional climate can affect all the parties involved. For example, employees react strongly to crises among the owners because they can have a direct effect on their feeling of job security. As well, feelings of injustice provoked by too much nepotism can undermine their motivation.” (6). Thus emotions shape attitudes, though without influencing strategic choices in a mechanical way. But when quarrels within the management, and particularly among members of the same family, create misunderstandings that have a negative impact on the firm, emotions (anger, jealousy, even interfamilial hatred) have a great responsibility.

Likewise, private events that crystallise dissension – such as the death of a founding member or purely personal disputes – can be the source of decisions that go as far, for example, as the fracturing of the firm into several blocs, and the creation of new entities. “The significance of emotions is thus not to be taken lightly in the fate of companies. It is crucial to ask how certain emotions should be governed – to put them at the service of the firm and the family”, Labaki warns. (7)

To conclude, “generally, emotions can be regarded as the result of individuals’ evaluations of each event or action that occurs with the family and the firm, or the environment in a broad sense – evaluations whose significant repercussions differ depending on the degree of emotional interaction between the family and the firm.” (8)

References
(1) Labaki, R., Michael-Tsabari, N., & Zachary, R. K. (2013). Exploring the Emotional Nexus in Cogent Family Business Archetypes. Entrepreneurship Research Journal, 3(3), 301–330. https://doi.org/10.1515/erj-2013-0034
(2) Bernhard, F. (2020). On the emotions that spark innovative and entrepreneurial behaviors in employees. In Skudiene, V., Li-Ying, J., & Bernhard, F. (eds.), Innovation Management (pp. 182-189). Northampton, MA, USA: Edward Elger. https://doi.org/10.4337/9781789909814
(3) Canovi, M., Succi, C., Labaki, R., & Calabrò, A. (2022). Motivating Next-generation Family Business Members to Act Entrepreneurially: a Role Identity Perspective. Journal of the Knowledge Economy, 1-28. https://doi.org/10.1007/s13132-022-00919-w
(4) Cailluet, L., Bernhard, F., & Labaki, R. (2018). Family Firms in the long-run: The Interplay between Emotions and History. Enterprises & History, 91, 1-22. https://doi.org/10.3917/eh.091.0005
(5) Bernhard, F. & Labaki, R. (2021). Moral Emotions in Family Businesses: Exploring Vicarious Guilt of the Next Generation. Family Business Review. https://doi.org/10.1177%2F0894486520941944
(6) Eddleston, K., Sieger, P., & Bernhard, F. (2019). From Suffering Firm to Suffering Family? How Perceived Firm Performance Relates to Manager’s Work-Family-Conflict. Journal of Business Research, 104, 307-321. https://doi.org/10.1016/j.jbusres.2019.07.024
(7) Labaki, R., & D'allura, G. (2021). A Governance Approach of Emotion in Family Business: Towards a Multi-level Integrated Framework and Research Agenda. Entrepreneurship Research Journal, 11(3), 119–158. https://doi.org/10.1515/erj-2021-2089
(8) Labaki, R., & Hirigoyen, G. (2020). The Strategic Divestment Decision in the Family Business Through the Real Options and Emotional Lenses. In Palma-Ruiz, Barros, & Gnan (Eds.), Handbook of Research on the Strategic Management of Family Businesses (pp. 244-279). Hershey, USA: IGI Global. http://dx.doi.org/10.4018/978-1-7998-2269-1.ch012
Visuel de couverture : Jason Goodman via Unsplash