David King, Olimpia Meglio, Luis Gomez-Mejia, Florian Bauer and Alfredo De Massis

Family firms and restructuring

There is an intuitive appeal that family firms display peculiarities in general and that this also affects their restructuring behavior. Family firms are ubiquitous across the globe and their economic impact is estimated to account for over 70 percent of world-wide gross domestic product. Family firms are active players in the market for corporate control, as restructuring is particularly relevant for them because the business and family systems typically evolve over time at different speeds. This forces families in business to frequently restructure by acquiring another company or selling the family firm, or assets. Sometimes buyers are a second generation or a private equity investor (buyout) that enable continued firm survival. Moreover, family firms can be targeted for takeover to highlight unique concerns of family control and ownership, as it happened for instance to the Italian family firm Indesit that was acquired by the Whirlpool corporation. However, existing research on business restructuring generally focuses on large and listed companies, leaving out the heterogeneous universe of privately-held firms and especially family firms. As a result, acquisition/divestment and family business literatures have almost developed in parallel with little integration. Coming from these different fields as an author team, our initial informal discussions made us curious about the intersection of the two fields and motivated our study where we integrate them and develop an integrative model that enhances current understanding of how the peculiarities of family firms are reflected in their strategic choices regarding acquisitions and divestments.

Our model integrates context, process, content and outcome dimensions with a focus on their interrelationships. We begin by recognizing the role context (with its governance, temporal, situational, environmental factors and firm resources) plays in family business restructuring.  The combination of these contextual factors explains when and under what circumstances family firms decide to acquire or divest. Decisions are driven not only by financial but also nonfinancial motives. In addition, as the relationship between the firm and the family plays a dominant role, stages or events in the family system influence decision-making: For instance, the presence or absence of a viable family candidate as future CEO is likely to affect business restructuring activity. Similarly, associations of acquisitions with young, male CEOs may explain family firms making fewer acquisitions as they tend to have older CEOs.

Why and how do family firms restructure?

Business restructuring strategies can be seen as strategies aiming to respond to changes such as technological changes or the current pandemic, but also to internal adversities such as financial distress. Available tangible or intangible resources also play an important role for the restructuring behavior of family firms. For example, family culture and values can either make the execution of business restructuring strategies more complex or help ensure continued management involvement.

Still, there is great variance in family firms’ acquisitive behaviors. Current family business restructuring research largely overlooks mechanisms that drive business restructuring. We borrow concepts of awareness, motivation and capability from competitive dynamics to establish such a link. Awareness involves perception/knowledge of opportunity and motivation involves managerial cognition associated with incentives to act. The distinction between awareness and motivations helps us to make sense why family firms differ in their restructuring choices. Still, firms are unlikely to engage in business restructuring without the capability to restructure, or having needed tangible (e.g., financial) and intangible (e.g., know-how) resources. After evaluation of conditions, incentives and availability of needed resources are made, decisions to proceed with business restructuring can be triggered. This leads firms to then begin the process of business restructuring.

In considering processes, there is a need to weigh choices behind decisions, completion, and integration. In this area, more research is needed to investigate whether and how firms learn business restructuring strategies (or build business restructuring capabilities).

The first stage in the process (content) involves choices regarding the business restructuring strategy: acquisition, divestment or buyout. These content decisions entangle differences in closing and integration.

Closing involves items associated with reaching an agreement with a seller (acquisition) or buyer (divestment), such as price or method of payment. After deal closing, process considerations of task (e.g., work processes, coordination) and human (e.g., culture facilitating change) integration are important.

The process and content dimensions of family business restructuring also have an impact on the outcomes of restructuring. At the same time, the context where restructuring takes place can influence and can be influenced by the outcome of restructuring. While different family business restructuring strategies imply different processes and outcomes, how family firms support assorted business-centered (e.g., horizontal growth, diversification or internationalization) and family centered-goals (e.g., raising the family’s reputation, keeping family harmony, facilitating a dynastic succession) with various restructuring options is poorly understood. These links are important to understand, as family firm goals impact content decisions and corresponding processes and outcomes. The measurement of family business restructuring outcomes is relevant, but it should reflect an intersection between socioemotional and financial motives, as well as continued survival.

In our model, outcomes are not the endpoint, as restructuring strategies are dynamic. Simply, outcomes of restructuring strategies can change context, content and process characteristics and considerations. For example, the outcome of a restructuring process impacts the governance of combining organizations, as restructuring changes ownership. Also, temporal and situational factors are affected by restructuring process outcomes, as a succession problem or a financial crisis might be solved. Family business restructuring can also change the environment of a firm by altering competition in an industry. Further, restructuring strategies always affect tangible and intangible resources by either reducing or enlarging a firm’s resource base. Outcomes also impact future restructuring processes. For example, restructuring processes can be learned over time and more experience might help firms to develop processes resulting in competitive advantage. Of course, this feedback loop also informs future content decisions. For example, positive or negative experience with a specific restructuring strategy might result in the development of a preference for a specific option and repeating or avoiding a specific approach.

More at: Family business restructuring: A review and a research agenda. https://onlinelibrary.wiley.com/doi/10.1111/joms.12717