Cultural Diversity and Conflict in Family Businesses

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Family firms play a key role in the economic growth and employment of any country. Several researchers argued that culture of family businesses plays an important role in determining whether the firm continues successfully beyond the first generation. Involvement of the family in business is often portrayed both as a special feature of the family business and as an important source of conflict in these businesses.

family business conflict organizational culture founder successor diversity

1. Introduction

Family firms play a key role in the economic growth and employment of any country (De Massis et al. 2018; Basco et al. 2021). Thus, over 50% of companies opened in European countries are family businesses (Rotaru et al. 2020). A small number of family businesses survive beyond the first generation and succeed as independent bodies to the third or fourth generation (Mokhber et al. 2017). Reasons for the deaths of family businesses range from inadequate economic situation, insufficient capital and resources, incompetent management to many generational or family related factors that affect the sustainability of these businesses (Bednarz et al. 2017; Moreno-Menéndez et al. 2022). Despite the undisputable importance of family firms, scholars are debating about the distinctive features that make them different from non-family firms (e.g., see Dawson and Mussolino 2014; Zajkowski et al. 2022). Several authors argued that culture of family businesses plays an important role in determining whether the firm continues successfully beyond the first generation (e.g., Dyer 1988; Vallejo 2008). As family firms’ culture is by some authors seen as a strategic resource that can sustain their competitive advantage (Zahra et al. 2004; Vallejo-Martos 2011; Laforet 2016) and improve firm performance compared to non-family firms (Denison et al. 2004; Sánchez-Marín et al. 2015; Raitis et al. 2020), understanding cultural patterns might have critical importance for the success of family firms.

Organizational culture refers to the coherent pattern of beliefs and values that represent common solutions to major organizational problems (e.g., Schein 1983), where cultural values act as wide-adopted norms of behavior (Tipu 2018). In family firms, organizational culture is greatly shaped through the processes of intergenerational interaction (Cherchem 2017; Magrelli et al. 2022). However, although generations are a constitutive element of family firms, a full understanding of all repercussions from their involvement in family business is limited (Magrelli et al. 2022). For example, intergenerational differences in the workplace are a well-documented source of conflict (Urick et al. 2017; Hirsch 2020), resulting with the finding that family firms experience conflicts even more often than other companies (Großmann and Schlippe 2015; Caputo et al. 2018). As founders often desire to retain family control even past their tenure, in the course of intergenerational transition and succession, tensions can occur between the need to honor the founder’s vision of the firm or adapt to the vision of the children/successors (Suddaby and Jaskiewicz 2020), as well as other value tensions between family members (Raitis et al. 2020) due to diversity and different perspectives.

2. Features of Organizational Culture in Family Firms

Four decades ago, in his seminal work on organizational culture, Schein (1983) recognized that firm founders strongly impact the evolution of organizational culture, as later confirmed by several studies (e.g., see Hall et al. 2001; Tipu 2018; Sindakis et al. 2022). According to Schein, entrepreneurs have a clear idea of what they want to achieve and how should the organization they manage behave. All this leads to imprinting founder’s vision, leadership, and decision-making onto the firm (Davis and Harveston 1999; Chua et al. 2004) and manifesting founder’s personality in family firm values and organizational culture. Adopted values further define firm’s operating style and response to change (Tipu 2018) and serve as a driver of entrepreneurship and growth (Raitis et al. 2020). Family firms are known for their strong and value-based cultures (Sindakis et al. 2022), where adopted values define corporate aims and provide a common basis for dealing with disagreements, challenges, and new initiatives. Through intergenerational transmission these are then passed to new generations in leading positions (Bika et al. 2019) and become a central element of culture, and a foundational element in decision making (Herrera and de las Heras-Rosas 2020; Suddaby and Jaskiewicz 2020).

Family firms, especially first-generation family firms, most often develop paternalistic culture (Dyer 1988). Such culture is unique as it emphasizes the founder’s centrality and family’s legacy, which fully confirms Schein’s assumption that founders have a prevailing impact on shaping family firm culture. Research has found that a paternalistic founder-centered culture type does not always have a positive impact on firm performance, especially among SME family firms (Laforet 2016) leading to finding that holistic view of family firms overlooks the fact that these firms are not a homogeneous entity (Heck 2004; Westhead and Howorth 2007; Węcławski and Żukowska 2019). Furthermore, the adoption of a specific cultural configuration will provenly vary according to the family culture, its diversity of beliefs, values, goals, history, and the social relationships of the family itself (Hall et al. 2001; Heck 2004; Tipu 2018) indicating that family ties have a role in shaping culture within family firms (Magrelli et al. 2022). Additional family related determinants of family firm culture include the level of family involvement in business, meaning is the firm only owned by the family or also managed by the family (Denison et al. 2004; Sánchez Marín et al. 2016), the type of family domination (one or several members), degree of openness and cultural explicitness (Hall et al. 2001), as well as other external pressures (Raitis et al. 2020). Clearly, the interplay of internal and external constituencies impacts on the change in family firms’ culture and values over time (Hall et al. 2001), and the shuffling of family relationships should be further investigated.

Generational transition and succession, a unique feature of family firms, has also been recognized as a force with potential to shape culture (Vallejo 2008; Cherchem 2017). The number of generations involved in the business is thus relevant factor while discussing family firms’ culture (Chirico and Nordqvist 2010). Participation of all groups involved in family business, relationships based on trust, stimulating dialogue, and negotiation might be useful to achieve harmony and minimize conflicts (Vallejo 2008). However, evidence shows that multi-generational family firms can be prone to conflicts among family members (see Frank et al. 2011), therefore conflicts in family firms need further attention.

3. Conflicts in Family Firms

Involvement of the family in business is often portrayed both as a special feature of the family business and as an important source of conflict in these businesses (Qiu and Freel 2020). When family and business are mixed, many positive effects arise; such as family health and prosperity, above-average company performance, better employee retention, socially responsible business, and environmental care (Pieper et al. 2013). On the other hand, while work can meet a family’s needs for income, job, and personal fulfilment, human and financial resources can cause a rift in the family system. Likewise, although family members can provide a skilled and loyal workforce at work, family conflicts and nepotism can penetrate business and worsen company performance (Pieper et al. 2013; Maharajh et al. 2023).

Two commonly found types of family stipulated conflicts are process and task conflicts (Frank et al. 2011; Jehn 2014). Task conflicts occur in the form of disagreements among family members about goals, strategies and the content of the task being performed, including differences in views, ideas, and opinions (Iqbal and Fatima 2013); often occurring between family members due to generational diversity. Process conflicts refer to disagreements about how the goals should be achieved (Kellermanns and Eddleston 2007). When more generations get involved in the family business both task and process conflicts tend to increase, yet these are expected to be functional conflicts, unlike interpersonal relationship conflicts which have been found to decrease the performance and satisfaction of all parties involved in the family business (Kellermanns and Eddleston 2007; Rosecká and Machek 2023). Task and process conflicts have an ambiguous role in the family business literature. On the one hand, scholars argue that these conflicts can stimulate creativity and improve decision-making processes (De Dreu and Weingart 2003; Kellermanns and Eddleston 2007), while earlier authors (e.g., Harvey and Evans 1994) highlight the detrimental effects of these conflicts on organizational performance and employee satisfaction. This contradiction in perspectives highlights the need for a more detailed and nuanced investigation into the specific manifestations of task and process conflicts in family businesses, along with their distinct effects.

Family businesses’ founders have a crucial role in creating an environment that encourages successors to learn from experience, accept their own mistakes, develop their self-confidence and managerial autonomy and purse family business continuity (LeCounte 2022). But, on the other hand, the existence of excessive and inappropriate engagement of the previous generations can cause social disruptions and a higher level of conflict in the organization (Moreno-Menéndez et al. 2022). This interference may be even more noticeable in the case of succession, given the great influence the founder has on the culture and processes of the company and his resistance to leaving the company (Rhodes and Lansky 2013).

The challenges that come with “intergenerational change” in family businesses are unique and require a different approach depending on the characteristics of the incoming generation. Conflict can arise in this period for various reasons, with differences in values, priorities, and diversity during intergenerational succession being one of the most significant factors (Gómez-Mejía et al. 2007). The incoming generation may have different values and priorities than the older generation, leading to disagreements about the direction and goals of the business. For example, the older generation may be resistant to change while the incoming generation may want to introduce new technologies, business models, or expansion strategies (Klein et al. 2005). This can create tensions and conflict within the family, as both generations struggle to reconcile their different views. A power struggle can especially arise during intergenerational succession as the outgoing generation may be reluctant to give up control, while the incoming generation may feel frustrated with their lack of decision-making power (Miller and Le Breton-Miller 2021). This power imbalance can create conflict with numerous consequences, including the effect on culture.

Generations may struggle to communicate effectively due to differences in communication styles or a lack of trust (Sharma et al. 2003), leading to another factor contributing to conflict during intergenerational succession. Lack of communication can lead to misunderstandings and conflict, making it difficult to develop a clear succession plan. Finally, emotional attachment also contributes to conflict during intergenerational succession. The outgoing generation may have an emotional attachment to the business, making it difficult for them to let go of control (Davis and Harveston 1999), which can create conflict and make it challenging to develop a clear succession plan.

The literature has often disregarded the crucial aspect of conflict resolution approaches in family businesses. A study by Alderson (2015) attempted to address this gap by shedding light on the diverse strategies employed by family firms to manage conflicts effectively. The research emphasizes the importance of understanding how conflict resolution approaches can influence the long-term sustainability and success of these businesses. If managed appropriately, conflict can lead to opportunities for growth and innovation within the organization (Lederach and Maiese 2003), contribute to the development of new perspectives, and ultimately result in a stronger, more resilient family business (Caputo et al. 2018). The ability to identify conflict and deal with resolution processes is often beyond the managerial skills or time of the family member. Conflict that is not addressed and is allowed to linger in the family business or with the external constituents may create problems that are very complex (Qiu and Freel 2020). Resolving these conflicts, and ultimately improving the health and resilience of families and their businesses, hinges on timely identification and subsequent treatment of potential problems resulting primarily from the business’s impact on and interaction with the family system (Danes and Lee 2004).

4. Implications of Conflicts in Family Firms

Family businesses’ unique dynamics can give rise to conflicts that may be difficult to resolve (Chua et al. 2004). These conflicts arise due to a variety of factors, including competing goals and interests, power struggles, and emotional entanglements (Davis and Harveston 1999). The outcomes of conflicts have significant implications for the long-term success and sustainability of the family business. When conflicts remain unresolved or are not handled properly, they can lead to bitterness, resentment, and a breakdown in communication between family members (Gómez-Mejía et al. 2007; Claßen and Schulte 2017), which not only damages the business but also the family’s overall well-being. In some cases, unresolved conflicts may even result in family members leaving the business or selling their shares, leading to a loss of expertise, knowledge, and valuable resources (Sharma et al. 2003). On the other hand, many conflicts have positive outcomes, such as increased innovation, improved decision-making, and enhanced creativity (Danes and Lee 2004). Conflict can stimulate change and bring attention to issues that may have been previously ignored or overlooked, leading to growth and development in the family business. In some cases, conflict may even serve as a catalyst for generational renewal and succession planning, helping to ensure the long-term continuity of the family business (Ward 2011). Family members from different generations may resist open knowledge sharing with each other if their relationships are marked by greater conflict due to diversity in experiences and viewpoints (Woodfield and Husted 2017).

The resolution of conflicts in family businesses depends on several factors, including the nature of the conflict, the degree of emotional involvement, the diversity of perspectives, and the willingness of family members to engage in a collaborative problem-solving process (Klein et al. 2005). Managing conflict in an integrative manner reflects the needs and priorities of others (Song and Wang 2013), with family members seeking to satisfy each other’s needs by seeking acceptable compromises. This approach involves open knowledge exchange across generations, with open, detailed discussions of opposing views (Alper et al. 2000). In contrast, using domination to manage conflict carries low concern for the preferences of family members and members of other generations (Song and Wang 2013). In a family business, the role of predecessors can be a determinant in creating an environment that encourages successors to learn from experience, accept their own mistakes, and provide a place where significant progress can be made in the development of their confidence and managerial autonomy (Calabrò and Mussolino 2012). Creating a culture of learning and growth within the family business can facilitate this process (Urick et al. 2017). Establishing effective conflict resolution policies and procedures, including the use of family councils, independent advisors, and other third-party resources, might help mitigate the negative effects of conflicts (Klein et al. 2005).

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