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    1042-2587 © 2010 Baylor University _Is Blood Thicker Than Water? A Study of Stewardship Perceptions in Family Business James H. Davis Mathew R. Allen H. David Hayes ‘Stewardship theory has been used to explain the culture and relationships within family businesses. Researchers have also demonstrated that stewardship leads to superior family business performance. To date, few empirical analyses have examined the situational mechanisms associated with stewardship in family business. This paper examines the role of the family in explaining stewardship within a family business, including the role of trust, value commitment, and agency. We find that value commitment, trust, and agency percep- tions explain a significant portion of stewardship variance for family and nonfamily business employees. We further find that family member employees perceive significantly higher value commitment, trust, and stewardship perceptions and lower agency perceptions in family firm leadership than nonfamily members, suggesting that blood is indeed thicker than water. Siewardship theory explains situations in which the leadership within organization serves the organizational good and its mission rather than pursuing self-serving, oppor- tunistic ends (Davis, Schoorman, & Donaldson, 1997). Stewardship theory is ideal for explaining governance in the family business context because of family business owners’ deep emotional investment in the family (Bubolz, 2001). Likewise, family business owners’ personal satisfaction (motivation) and reputation (Ward, 2004) are tied to the family enterprise. When this is the case, owners adopt the role of the steward in serving the organization rather than themselves, and the agency costs and the associated control mechanisms posited by agency theory as being necessary to control self-serving execu- tives are not necessary (Davis et al.). Good stewards in family businesses are motivated to serve organizational interests, and as a result receive intrinsic satisfaction when the business advances and succeeds (Corbetta & Salvato, 2004). Stewardship theory applies to family business because the leadership of the family business (whether family or nonfamily members) can act independently of the family that ‘owns organizational wealth. A good steward in a family business is a decision maker who is a caretaker of a family’s assets, who desires to pass a healthier and stronger business to Please send correspondence to: James H. Davis, tel: (574) 631-8614; e-mail: davis.31@ndedu and to Mathew R. Allen at ma.allen@neu.edu. November, 2010 1093 DOI: 10.1111 /j.1540-6520.2010.00415.x future generations. Current and future family members, as well as nonfamily employees, benefit when the family member(s) in charge of the family business are motivated by the success of the organization (collective) rather than enriching themselves at the expense of the business and its stakeholders (Eddleston & Kellermanns, 2007). Even in family businesses, leadership (whether family or nonfamily) can act inde- pendently of the family that owns organizational wealth. Stewardship theory (Davis et al., 1997) has as its central premise that business leaders can be altruisitcally motivated to enhance the business rather than themselves. Alternatively, agency theory assumes that executives are self-serving and opportunistic, resulting in agency costs to the organization and its stakeholders (Jensen & Meckling, 1976). As a result, organizations in which agency costs are a concern are required to focus on controlling executive opportunism and its associated costs. Organizations with good stewards and a stewardship orientation, however, do not have the costs associated with agency, and, as a result, can direct resources that would have been spent on monitoring and control, toward maximizing firm performance (Chrisman, Chua, & Litz, 2004; Corbetta & Salvatto, 2004). Indeed, research has demonsrated that stewardship behaviors are an important component of the competi- tive advantage of family businesses (Eddleston & Kellermanns, 2007; Miller, Le Breton- Miller, & Scholnick, 2008; Zahra, Hayton, Neubaum, Dibrell, & Craig, 2008). Miller & Le Breton-Miller (2006) argued that family businesses will outperform nonfamily busi- nesses because they do not have to invest in “free-rider agency costs.” and, as a resuit, have higher financial performance because of the “superior attitudes of stewards! Hoopes. and Miller (2006) argued that the savings from monitoring costs of self-serving agents results in more resources to invest in the family business enterprise leading to competitive opportunities and advantages to the family business. Additionally, Eddleston and Keller- manns found that stewardship relationships in family business result in higher perfor- mance because they keep family members focused upon the well-being and success of the family business. They further found that when stewardship relationships are not present, conflicts emerge that significantly harm a family firm’s performance (Eddleston & Keller- manns). Stewardship has also been shown to contribute to strategic flexibility further enhancing organizational level performance (Eddleston, 2008; Zahra et al.). Clearly, stew- ardship theory constitutes a good fit for family busir . and its use in the family business context can lead to positive performance outcomes. In their early work on stewardship theory, Davis et al. (1997) argued that in addition to psychological mechanisms associated with the leaders or managers, certain situational mechanisms such as high levels of trust and a group or collective oriented culture would be associated with a stewardship form of governance. While these situational mechanisms have been supported empirically using samples of nonfamily businesses (Davis, Fran| forter, Vollrath, & Hill, 2007), litte empirical work has been done in the family business context Researchers extol the virtues and fit of stewardship theory in family businesses; however, few studies have empirically investigated the mechanisms associated with stew- ardship behaviors in the family business context, including differences between family members and nonfamily members. In order to better understand the role of stewardship in contributing to the competitive advantage of family businesses, researchers must better understand these situational mechanisms. This lack of understanding represents a signifi- cant gap in our understanding, which this research will address by looking specifically at differences between family members and nonfamily members and their perceptions of stewardship, as well as the proposed situational mechanisms. Understanding when and where stewardship applies within family firms can enhance our understanding of the extent to which stewardship and its implications permeate the 1094 ENTREPRENEURSHIP THEORY and PRACTICE family business context (Chua, Chrisman, & Bergiel, 2009; Corbetta & Salvato, 2004). This constitutes a significant contribution to both theory and practice. Researchers will be better able to explain how this important governance structure functions within the family business context, and whether or not the stewardship construct with its hypothesized situational mechanisms is the same for family members and nonfamily members. Simi- larly, practitioners will have a clearer idea of where they can focus to develop and support stewardship behavior in their own firms. The purpose of this research is to (1) understand if hypothesized situational mecha- nisms previously tested in nonfamily businesses are the same within the family business context; and (2) test for differences in these mechanisms, as well as overall perceived stewardship between family and nonfamily employees. We theoretically develop and empirically test three situational mechanisms associated with stewardship: commitment, trust, and agency within the context of family businesses by looking at differences between family and nonfamily employees. Is blood thicker than water with respect to the perceived stewardship of organizational leaders? In other words, to what extent do family values and trust of family business leadership and perceived stewardship permeate the family business, including both family and nonfamily employees alike? Supporting Mechanisms In their theoretical development of stewardship theory Davis et al. (1997) introduced a model that included collective serving, higher-order needs achievement, intrinsic moti- vation, commitment to values, and the use of personal power as positive psychological mechanisms associated with stewardship behavior. These psychological mechanisms form the basis for the stewardship behaviors most often used to measure stewardship levels in academic studies (Davis et al., 2007). In addition to these psychological mecha- nisms, Davis etal. (1997) further argued that situational mechanisms such as an organization-based or collective culture and high levels of trust in management would be positively associated with stewardship, and that an environment of control and self- serving behavior would be negatively related to stewardship. Subsequent empirical testing ‘of the model using a sample of nonfamily firms supported the existence of these situ- ational stewardship mechanisms (Davis et al., 2007; Frankforter, Davis, Vollrath, & Hill, 2007). Le Breton-Miller and Miller (2006) argued that family businesses have a longer-term perspective compared with other organizations. This is brought about by an interest in benefitting future generations of family through the business as opposed to investors or markets. In addition, family businesses exhibit higher levels of personal sacrifice, social sitivity, employee loyalty, continuity, and purpose than nonfamily businesses (Don- nelley, 1964). These characieristics of family business appear to be a great fit with good stewardship, which involves individuals supporting a firm-level rather than an individual- level view of organizational governance (Davis et al., 1997). Given this general fit between family businesses and stewardship, what are the situational mechanisms that are likely to be associated with stewardship in family businesses? Based on arguments for situational mechanisms associated with stewardship and the fit with stewardship theory, we argue that both commitment to values and trust will be positively associated with stewardship in family firms, and that perceived agency will be negatively associated with stewardship. We further argue that these associations will be consistent across both family and nonfamily employee: November, 2010 1095 Commitment Research on commitment is very rich and has been applied at the individual and organizational levels (Riketta, 2002). Meyer and Herscovitch (2001) argued that com- mitment is a binding force that is experienced as a mindset or as a psychological state that leads an individual toward a particular course of action. Mowday, Porter, and Steers (1982) argued that it is an individual's identifi involvement in a par- ticular organization, and can be characterized by a strong belief in and acceptance of the organization's goals and values, a willingness to exert considerable effort on behalf of the organization, and a strong desire to maintain membership in the company. Thus, commitment represents a strong tie or binding relationship and does indeed affect behavior. Commitment has been studied extensively in family businesses. It has been asso- ciated with succession (Handler, 1994; Sharma & Irving, 2005), family business plan- ning (Ward, 1988), and generational life cycles (Gersick, Davis, Hampton, & Lansberg, 1997). Research on organizational commitment has concluded that there are two types of commitment, value commitment and continuance commitment (Mayer & Schoor- man, 1992, 1998). Value commitment is of particular interest to this study, because it is a good indicator of an organization based on collective culture (Angle & Perry, 1981; Davis et al., 1997). Value commitment is defined as identification and alignment with the business, specifically with the beliefs and values that it represents (Angle & Perry). Value commitment implies that organization members share the values represented by the organization, and, in that way, the organization is an extension of them. Likewise, the shared values represented by high levels of value commitment indicate a group orientation where harmony and group or organization success holds greater value than individual achievement. This is supportive of a collective culture that has been pre- sented as an important situational mechanism associated with stewardship in organize tions (Davis et al.). Following the arguments presented by Davis et al., this relationship between value commitment and stewardship should be consistent across both family and nonfamily employees, as it is this collective culture rather than the type of employee that represents a situational mechanism associated with stewardship. As a result, we propose the following hypotheses related to value commitment and steward- ship in the family firm: Hypothesis 1a: Overall employee value commitment in family businesses will be positively associated with perceived stewardship and explain a significant portion of its variance, Hypothesis 1b: Value commitment of family member employees in family busi- nesses will be positively associated with perceived stewardship and explain a signifi- cant portion of its variance. Hypothesis 1c: Value commitment of non-family employees in family businesses will be positively associated with perceived stewardship and explain a significant portion of its variance. Trust Another situational mechanism associated with stewardship is trust in management (Davis et al., 1997). Trust is defined as the “willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party” (Mayer, Davis, & Schoorman, 1995, p. 712). Trust is considered to be a situational 1096 ENTREPRENEURSHIP THEORY and PRACTICE mechanism of stewardship because high levels of trust or a willingness to become vulnerable on the part of employees implies involvement of employees rather than tight controls, which tend to reduce the need for trust by eliminating risk (Davis et al.; Mayer etal.). Tagiuri and Davis (1996) argued that trust can be higher in family businesses because of “family language” that comes with tight family relationships, where there is less informational asymmetry than in nonfamily relationships. Because of the efficiency and effectiveness of information exchange in family relationships, family members are more open and willing to be vulnerable to one another. They trust each other. Daily and Dollinger (1992) argue that these trusting relationships in family businesses require less organizational structure and lower monitoring and control costs than are typically found with self-serving, agent-like behaviors. Accordingly, a high level of trust in management among employees should be associated with stewardship among family businesses. As was the case with value commitment, this relationship between trust and stewardship should be consistent across family and nonfamily employees alike. This suggests the following hypotheses: Hypothesis 2a: Overall employee trust of family firm leadership will be positively associated with stewardship and explain a significant portion of its variance. Hypothesis 2b: Family employee trust of family firm leadership will be positively associated with stewardship and explain a significant portion of its variance. Hypothesis 2c: Nonjamily employee trust of family firm leadership will be positively sociated with stewardship and explain a significant portion of its variance. Agency The primary underlying assumption of agency theory is that individuals are opportunistic and self-serving and will maximize their own self-interest, possibly at the expense of the interests of the family owners of the corporation (i.e., the prin- cipal). It is these self-serving behaviors that lead to a need to control leaders in an agency situation (Jensen & Meckling, 1976). Agency theory prescribes several controls, such as systems of monitoring and sanctioning (¢.g., by a board of directors) and incentive alignment (e.g., share option schemes for executives) in order to limit self-serving behaviors on the part of the organizational leader (Jensen & Meckling). Agency behaviors on the part of the leader are an indication of the use of institutional power in order to control stakeholders, including employees (Davis et al., 1997). This control orientation represents a situational mechanism that is in opposition to stewardship. Regardless of the type of employee, perceptions of self-serving behaviors on the part of the leader and a lack of interest in current stakeholders or the future of the business will indicate a culture or orientation of control, which should not be associated with stewardship in family businesses. This suggests the following hypotheses: Hypothesis 3a: Perceptions of agency in family business leadership by overall employees will be negatively associated with stewardship and explain a significant portion of its variance Hypothesis 3b: Perceptions of agency in family business leadership by family employees will be negatively associated with stewardship and explain a significant portion of its variance. Hypothesis 3c: Perceptions of agency in family business leadership by nonfamily employees will be negatively associated with stewardship and explain a significant portion of its variance. November, 2010 1097 We contend that stewardship behavior by family leaders within a family business will be positively associated with employee value commitment and trust in firm management, and will be negatively associated with perceived agency behaviors in family firm leader- ship. These represent situational mechanisms argued to be associated with stewardship, but not tested in the family business context. We will now turn to potential differences between family and nonfamily employees in relation to these situational mechanism, as well as in overall stewardship perceptions. Is Blood Thicker Than Water? The first series of hypotheses examine situational mechanisms expected to be asso- ciated with stewardship behaviors in family businesses. While underlying theory suggests that the relationship between these hypothesized mechanisms and stewardship should be consistent regardless of the type of employee, this paper examines whether this holds in the family business context. Specifically, we want to understand whether family members or nonfamily members hold different perceptions with regard to stewardship and its associated situational mechanisms. We now turn to an examination of the potential differences between family members and nonfamily members in their levels of value commitment, trust, agency, as well as perceived stewardship in the family business context. In short, is blood thicker than water? A family business is grounded upon the underlying values and belief system of the family. Hoy and Verser (1994) argued that “family members in a business are more influenced by this unique set of family values than non-family employees would be” (p. 15). This is because family members are tied to both the business and the family, while nonfamily employees are tied only to the business. While nonfamily employees may appreciate the values of the family and even share the values of the business, it is not expected that the magnitude of value commitment experienced by nonfamily employees is as high as that experienced by family member employees. Whether it explains a significant portion of variance or not, family members should have significantly higher value commitment than nonfamily members, suggesting the following hypothesis: Hypothesis 4: Family employees will have significantly higher average value com- mitment to the family business than nonfamily employees. Trust of family business leadership on the part of family member employees should also be higher than for nonfamily member employees. Family members have stronger insights and experiences about characteristics of organizational leaders and their trust- worthiness than nonfamily members. As discussed previously, trust represents a willing- ness to put oneself at risk or be vulnerable to the actions of another (Mayer et al., 1995) Because the relationship that family members have with family management extends beyond the employment relationship, family member employees have a greater opportu- nity than nonfamily employees to develop a trusting relationship. Likewise, because of the family ties, family member employees might perceive a greater obligation on the part of the family business management to look out for the interests of family employees over nonfamily employees increasing their willingness to make themselves vulnerable to management and further increasing trust. On the flip side of the argument, Ward, Envick, and Langford (2007) argued that nonfamily member concerns about trust may be elevated relative to family members, and can even have a negative impact on firm performance. The following hypothesis reflects this argument: 1098 ENTREPRENEURSHIP THEORY and PRACTICE Hypothesis 5: Family employees will have significantly higher average trust for family firm leadership than nonfamily employees. Similarly, family employees should perceive significantly lower, self-serving agency behavior with family business leadership than nonfamily members. Nonfamily members will perceive higher agency behaviors because family leadership will be centered on the family collective, a collective which may not fully include nonfamily employees. Even in situations where family business leadership is acting in ways that promote the good of the organization, nonfamily employees, as outsiders to the family relationships, may see the benefit of such behaviors to themselves as diminished. This will lead to perceptions of self-serving or at a minimum family-serving behaviors on the part of firm leadership. Family members, on the other hand, are insiders to the family relationships and are more likely to reap benefits from their insider status. Family members, as a result, would be less likely to perceive self-serving agency-related behaviors in firm leadership, suggesting the following hypothesis: Hypothesis 6: Nonfamily employees in a family business will perceive significantly higher perceptions of firm leadership agency than family employees. Finally, following on the expected differences in magnitude in the situational mecha- nisms of value commitment, trust, and agency perceptions, it is expected that the per- ceived stewardship of family business leadership will be higher for family member employees compared with nonfamily employees. As with trust and value commitment, the fact that family members are more familiar with the leaders of the organization and have a better understanding and appreciation of the family-centered focus and direction of the firm should lead to greater approval of the stewardship of leadership compared with nonfamily employees. In essence, blood should be thicker than water! Hypothesis 7: Family employees in a family business will perceive significantly higher perceptions of firm leadership stewardship than nonfamily employees. We now turn to a description of the methodology we used to test the proposed hypotheses. Methodology The sample chosen to test our hypotheses was a set of 1,100 business employees affiliated with a major university who identified themselves as working for a family business. Follow-up analysis found that these employees come from organizations in which one or more family members have significant ownership in and control over the destiny of their organization. The sample included both family and nonfamily business employees. An invitation and a link to a web-based survey were sent by email to each employee contact. Several follow-up emails were sent to nonrespondents, resulting in the receipt of 192 completed surveys for an initial response rate of 17%. In order to increase the response rate, a final appeal was made to nonrespondents resulting in the receipt of an additional 174 completed surveys, for a total of 366 completed surveys representing 315 family businesses, and a final response rate of 33%. The response to our final appeal resulted in a significant increase in our sample size. We attribute the response to two factors. First, as mentioned previously, the sample was a set of family business employees affiliated with a major university. In addition to this affiliation, respondents were given the opportunity to receive a summary of the results November, 2010 1099 upon completion of the study, Bartholomew and Smith (2006) found that the use of social networks created through the sponsorship of a third party and the potential for the exchange of information can significantly increase response rates from small and medium enterprises. Second, while the first round of invitations was sent during a period of normal business operations, the final reminder was sent just prior to the end of December and end-of-the-year holidays. Survey response rates from small and medium enterprises, including many family businesses, are historically much lower than those of larger organizations (Bartholomew & Smith; Baruch, 1999). This is explained in part by the fact that smaller businesses have fewer slack resources and thus do not have the resources for participation in survey research (Bourgeois, 1981). By sending the final reminder out during a time when many potential participants were taking time off work for holidays and vacation, we were able to capitalize on an increase in slack resources In this way, family business employees who might not normally have the resources to participate in survey research were able to respond. Thus, by capitalizing on an increase in slack resources, coupled with third-party social networks created through the univer- sity affiliation, the second round response rate was similar to that of the first round. In order to test for response bias, first-round respondents were compared with these second- round respondents on all variables of interest, and no difference was found between the two groups. Of the total respondents, 66% were family, and 32% were nonfamily employees in the family business. A majority of the respondents were male (77%) and had a college degree (52%). Fifty-six percent of the sample had worked in the family business I or more years. Twenty-eight percent of respondents made tactical decisions, and 46% of the sample made strategic decisions for their family business. Sixty-six percent of the companies in the sample were more than 15 years old, and 41% had more than 25 employees. Forty-five percent of the companies had three or more family members employed in the business Thirty-two percent of the companies were first-generation, 43% were second-generation, and 11% were third-generation family businesses. Measures As mentioned previously, a web-based survey was used to measure each of the variables for the purpose of hypothesis testing. Scales used for each of the variables were as follows. Stewardship. A three-item Likert scale was used to measure stewardship. Items in our stewardship measure came from a scale developed by Davis et al. (2007) to measure stewardship and are grounded upon the stewardship theory research by Davis et al. (1997) Respondents were asked to indicate the extent to which they agreed with statements regarding the level of stewardship behavior they perceived in firm leadership (1 = strongly disagree, 5 = strongly agree). The sum of the three items was used for hypothesis testing. The Cronbach's alpha for the stewardship scale was .700, which was deemed appropriate given the exploratory nature of this study. In order to further establish the validity of the stewardship measure used in this study, a factor analysis was performed. Other studies that have investigated stewardship in family business have used altruism as a proxy for stewardship (e.g., Eddleston & Keller- manns, 2007). A subset of our data (N = 174) also included measurement of the altruism measure used in Eddleston and Kellermanns. We believe that altruism represents a potential outcome of stewardship and though related, is not a measure of stewardship. Thus, the measures for stewardship, agency, and altruism were factor analyzed. Table | 1100 ENTREPRENEURSHIP THEORY and PRACTICE Table | Stewardship, Agency, and Altruism Items and Factor Analysis Component Altruism Agency Stewardship 285 391 502 198 242 sas The leaders of my organization take # long-term more than short-term approach 10 27 -218 845 business My organizational leaders use their power and authority to serve their own interests 087 886 =204 mnizational leaders seek perks and benefits to serve their ewn rather than = 163 909 193 ational imoress mnizational leaders have strategic initiatives that serve their own rather than 173 371 =219 Employees ofien help other employees ‘work whem they are absent 303 =185 102 Employees often volunteer to do th mnzation thot are not required 319 =243 100 yy workloads 864 ~174 081 Employees often assist other family members with their work 631 087 310 Employees often make innovative suggestions to improve the organization so ~.108 A Note: Individual factors are highlighted in bold, shows that the three-item measure of stewardship, the three items assessing agency (described below), and the five-item scale of altruism all factor into different variables. Items in the scales are grounded solidly upon the theoretical arguments underlying each variable (Davis et al., 1997), and the earlier empirical work of Davis et al. (2007) and Frankforter et al. (2007). While altruism and stewardship are significantly correlated (r= .497**), stewardship and altruism are distinct variables, as shown by the factor analysis, as was agency, providing further evidence of the validity of the ‘stewardship measure used in this study. Value Commitment, This research used a nine-item scale developed by Schechter (1985) to assess value commitment, which has been used by others as a valid and reliable measure for their research (e.g., Mayer & Schoorman, 1992, 1998). Respondents indicated the degree to which they were value committed to the business using a 5-point Likert scale, strongly disagree to strongly agree. Value scale items assessed the degree to which they were committed to organizational values, identified with the firm, and were willing to leave the organization. As shown in Table 2, the reliablity was acceptable with a Cronbach's alpha for value commitment at .896 Trust. Respondents were asked to complete the survey regarding their perceptions of trust for family business leaderships using a scale developed by Davis, Mayer, Schoorman, and November, 2010 1101 zou OUD Yel PU AJOL dIFSUNINTUATUANT Table 2 Descriptive Statistics, Cronbach’s Alphas, and Correlations! Cronbach's Variables. == Mean SD alpha t6.05,2¢ pe 01. 7p

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