Human resource control systems and family firm performance: The moderating role of generation

Abstract

Within the general management literature, the importance of Human Resource (HR) practices has been generally recognized. Yet, when shifting the focus to the domain of family businesses, the topic of HR becomes highly underresearched. Taking into account that general management literature often infers a positive effect of HR practices on business performance, this paper further explores this relation in the family business research field. Family firms play a significant role in the global economy, and within the SMEs they are the predominant form of organization. Family businesses are by virtue of their unique business construction - which encompasses besides the business system also a family system - an interesting setting to explore the impact of HR practices. As family firms have a tendency to remain independent and keep close control over the business, they are in general less eager to implement formal HR control systems, as this is associated with a loss of control over the employee relations. Despite of their overall hesitance, the importance of HR practices within the family business context should not be disregarded. This paper contributes to the existing literature by assessing the impact of the use of formal HR control systems on business performance. Using a representative sample of 532 small to medium-sized private Belgian family businesses, the regression results show a significant positive effect of implementing HR control systems on firm performance. In addition, we find that this positive effect is moderated by the family generation controlling the business. The positive effect of HR control systems on firm performance decreases in the second and later generations compared to the first generation. Through a socioemotional wealth (SEW) perspective, first generation family firms will place higher priority on the preservation of their SEW, referring to the importance of nonfinancial goals of family owners. SEW may lead to the hiring of potentially incapable family managers and providing high remunerations for family employees based on kinship instead of their accomplishments. Introducing formal systems of control in first generation family firms coping with high SEW will therefore have a greater positive impact on business performance than in second or later generation family firms where SEW is low.