Governing by managing identity boundaries: the case of family businesses.

Considerable integration between the family and business identity entails a significant overlap of roles, promotes role ambiguity--the lack of clear and consistent information regarding the actions required in a particular role--and role conflict--which occurs due to incongruent expectations from two or more roles (Kahn, Wolfe, Quinn, Snoek, & Rosenthal, 1964), and evokes defenses that challenge an individual' s ability to psychologically separate roles (Ashforth et al., 2000; Valcour, 2002). These psychological challenges encourage conflicts from one domain to spill over into the other (e.g., business to family and family to business), making the family firm and the family particularly vulnerable to the negative effects of conflict. In addition, integration creates an atmosphere in which the family firm is more liable to pursue conflicting goals, as the role conflicts among individuals and the special interests of subgroups become aggregated at the firm level.

A family member working in the family business can occupy several roles simultaneously: as a father, a son, a brother, an employee, or an owner. In an integrated environment, the expectations from members within these role sets can be particularly ambiguous and/or conflicting. Relatives may be concerned with family harmony, owners with return on their investment, and managers with improving the operational efficiency. Managers may be unclear about nonemployee family owners' expectations for the business--whether profits should be distributed to them as shareholders or reinvested in the growth of the company. Alternately, stock-owning family members may want higher dividends, whereas family-management team members may favor growth, resulting in conflicting expectations. Similarly, as the family business grows and the second generation enters the arena, uncertainty increases about which of the family members (if any) need to be included in the decision-making process. Thus, the issue as to whether the family exists for the businesses or the business exists for the family is a particularly salient dilemma faced by integrated family firms and evokes considerable ambiguity and conflict (Eys & Carron, 2001).

Tensions arising from role blurring can evoke defenses such as splitting and repression or denial (Smith & Berg, 1987). Splitting entails polarizing contradictions and encouraging the formation of subgroups, whereas denial involves ignoring the tension and pretending that it does not exist. While these defenses can give temporary relief from tensions, in the long run they have dysfunctional effects such as conflict, distrust, and resistance to change. Splitting coupled with projection can also be an important source of affective conflict among members within a family firm (Rizzo, House, & Lirtzman, 1970). These defenses at the individual level can encourage subgroups such as family and nonfamily, or "core family" and others. Conflict between groups can center on emotions, resulting in competing groups viewing the other as the "enemy." Tight cohesion within groups can reduce healthy debate essential for the emergence of entrepreneurial ideas. Difficult emotionally charged decisions such as succession, evaluation, and compensation of family employees may get polarized, stifling communication, further pulling the groups apart. Several family businesses such as the Steinbergs and the Guccis, among several others, have experienced such dysfunctional conflict among its members, adversely affecting the business and the family well-being.

Denial of tensions between the family and business needs can reduce interactions and communications with cross-realm participants and cause participants to psychologically withdraw from the decision-making process (Sell, Brief, & Schuler, 1981). Consequently, status quo may be maintained and the need for continuous change may be denied even when change is essential for survival, as in the case of firms competing in fast-paced environments. The use of such defensive mechanisms can result in key decisions such as succession or divestiture not being confronted. In fact, research indicates that only 30% of the family firms in the United States move to the second generation and only 10% make it to the third generation, in part due to the failure to plan for succession (Handler & Kram, 1988). Not addressing head-on such key decisions allows conflict and distrust to fester.

Defenses evoked by tensions within integrated family firms can have significant implications for nonfamily employees. It creates incentives for a family firm CEO to allow family employees to free ride or to lavish them with perquisites that are not given to nonfamily employees. Such actions can lead to perception of unfairness. For instance, Poza, Alfred, and Maheshawi (1997) provide evidence that nonfamily employees are typically less satisfied than family members with the equity of compensation despite the fact that nonfamily managers in their sample were paid a premium, varying from 15.4 to 29.5%. They also find that nonfamily employees believe that they are likely to be excluded from senior positions. Consequently, real and perceived unfairness to nonfamily employees can erode trust within the family business.

Advantages and Disadvantages of Differential Permeability

As discussed earlier, in the state of differential permeability as opposed to full integration or full segmentation, each aspect of the continuum (e.g., image culture, personnel policies) as well as manifestations within each aspect might be at a varied level of integrating the family and business identities. Clearly, this state allows for leveraging the best of both worlds (family and the business) and mitigating the disadvantages of extreme integration or segmentation. But boundary theory and identity research would suggest that there are costs as well to having dimensions vary along the segmentation-integration continuum (Ashforth et al., 2000; Nippert-Eng, 1996). We discuss in succeeding sections both aspects of differential permeability.

Advantages to Differential Permeability. One key advantage to the state of differential permeability is that the firm is able to keep negative aspects of one domain from spilling into the other while also being able to integrate positive or strategically advantageous aspects of one domain into the other. Leaders and managers are able to somewhat "cherry pick" those elements they want to keep in versus keep out of the family or business. Another important benefit of differential permeability is that the dimensions can compensate for one another to balance out any extremes. That is, the strengths of one aspect make up for the weaknesses of another. Indeed, we might see that a firm's strict hiring policies (segmentation) could compensate for having a work climate that is too informal/familial (integration). Another advantage of differential permeability is that it avoids excessive homogeneity that can leave the firm vulnerable by putting "all of its eggs in one basket," constraining its ability to respond to diverse demands (cf. Linville, 1983). Hence, the diversity of approaches inherent in differential permeability can be used as a strategic leverage for the firm.

Disadvantages of Differential Permeability. One key disadvantage of differential permeability is that this "cherry picking" approach requires work--boundary work--and therefore will incur costs to the organization in terms of cognitive attention, behavioral effort, and potential emotional toll. That is, differential permeability does not come free to the organization and will require effort both to arrive at the point of desired balance between integration and segmentation as well as to maintain that desired level. This work involves at least four steps: (1) deciding upon a general level of integration/segmentation desired by the firm; (2) acknowledging the need for boundary work to achieve differential permeability; (3) diagnosing which aspects of the family and the business to integrate and which to segment; and (4) implementing these decisions via boundary work.

As another disadvantage to differential permeability, the dimensions can come into unintended conflict with one another, creating inconsistencies in the firm's work climate, policies, etc. For example, sizeable nonfamily stock ownership (segmentation on the ownership/governance dimension) could severely conflict if there is a substantial increase in family employment with the next generation (integration in the personnel dimension). These incongruities can result in a work climate of ambivalence, wherein individuals experience intensely mixed emotions toward the organization, which lowers morale and productivity (Pratt, 2000). A third cost of differential permeability is that the inconsistency of integration--segmentation is more difficult to manage and be lived by employees on a day-to-day basis. The dissimilarity across aspects translates into more deciphering and decision making, which takes up cognitive, affective, and behavioral resources. Evidence for this has been found at the individual level of analysis in regard to multiple identities and roles (e.g., Ashforth et al., 2000; Nippert-Eng, 1996), and we argue that a similar logic would apply at the organizational level. Therefore, while differential permeability offers a promising route to leveraging the best of the family and business domains, the firm has to consciously invest emotional, cognitive, and structural investments to actively manage the multiple dimensions of its identity.

Boundary Work as a Means of Managing Identity Integration