Formal human resource practices in family firms

Abstract

Purpose -The importance of formal human resource(HR) practices is widely recognized in management literature, but under-researched in the small business and family firm domain. Previous research indicates that family firms rely more on informal HR practices, based on social networks. However, given the heterogeneity of family firms, one cannot assume that all family firms are reluctant to formalize their HR. As the CEO is the key decision maker who covers HR management in family firms, the effect of the CEO type on formal HR practices will be studied. Design/methodology - Based on a large-scale survey, resulting in a response of 532 family SMEs, we perform a hierarchical regression analysis studying the effect of a family/nonfamily CEO on the use of formal HR practices, introducing several moderating effects: CEO generational stage, tenure and education. Findings - Results indicate that family firms with a family CEO have more formal HR practices than those managed by a nonfamily CEO due to higher levels of goal alignment and intentional trust between the owning family and family CEO. Moreover, family firms managed by first generation family CEOs and family CEOs with a higher education have more formal HR practices. Practical implications -Our findings suggest that family CEOs can be equally or even more able as nonfamily CEOs to run a family firm in a formalized/professionalized manner. Originality - Given the scant amount of research on HR formalization in family firms, even though literature documents performance increasing effects, this study fulfils the need to study the effect of the CEO on HR formalization.