How do CEOs see their Role? Management Philosophy and Styles in Family and Non-Family Firms
Using a survey of 800 CEOs in 22 emerging economies we show that CEOs' management styles and philosophy vary with the control rights and involvement of the owning family and founder: CEOs of firms with greater family involvement have more hierarchical management, and feel more accountable to stakeholders such as employees and banks than they do to shareholders. They also see their role as maintaining the status quo rather than bringing about change. In contrast, professional CEOs of non-family
... CEOs of non-family firms display a more textbook approach of shareholder-value-maximization. Finally, we find a continuum of leadership arrangements in how intensively family members are involved in management. Professional CEOs of non-family firms are around 15% less likely than professional CEOs of family firms and related CEOs to view family relationships as important to successful business, and report that the founders of their firms are less likely to have a role in naming directors, or advising on major investment decisions. Unlike founder CEOs (and to a lesser extent the other two CEO types), professional CEOs of non-family firms view large shareholders as more important stakeholders than banks, perhaps reflecting the high preponderance of foreign multinational control of this type of firm. The professional backgrounds of such professional CEOs also reflect a different career path: they are more likely to have been CEOs of other firms and to have held senior positions in finance than founders or related CEOs, and are around 14% less likely than all other CEO types to view specific industry knowledge as one of the two most important factors for success, which is suggestive of a generalist background. Related CEOs and professional CEOs of family firms fall between these first two CEO types on all dimensions. Related CEOs tend to be closer to founder CEOs in their responses, as they maintain a high fraction of cash flow and control rights in the firm they run: they are almost as likely to own equity in the firm as founders (60% more likely for founders, and 50% for related CEOs in comparison to both types of professional CEO) and also to own over 5% of the firm (75% more likely for founders, and 60% for related CEOs). They are also the CEO type most likely to be on the Board of their firm, although they are less likely to be the Chairman of the Board than founder CEOs. In contrast to founders, and even to professional CEOs of non-family firms, related CEOs appear to be less empowered, since they are often supervised by a powerful founder. Related CEOs are more likely than other CEOs to report that the founder is still involved before major investment decisions, that the founder, rather than the Board, terminated the last CEO, and also that they themselves were appointed by the founder. The active presence of the founder might explain why related CEOs seem to resemble founder CEOs in their approach to governance and business philosophy. Like founder CEOs, related CEOs are more likely to feel accountable to banks and are more likely to involve banks in major investment decisions than professional CEOs of non-family firms. Also like founder CEOs, related CEOs are more likely to favor maintaining the firm's values over bringing change, and are approximately 11% more likely to say they would choose to prioritize maintaining employment over paying dividends. The point estimates on all these dimensions are smaller than those for founder CEOs, but they are consistently and significantly different from the answers of professional CEOs, suggesting a systematic difference in business philosophy. Related CEOs are also more likely than other CEOs to say that family relationships facilitate access to business information, perhaps reflecting their personal experience. Despite this similarity to founder CEOs in governance and business philosophy, the management style of related CEOs seems to be closer to that of professional CEOs. Related CEOs are much more likely than founder CEOs to view the selection of senior managers as important, and are less likely to answer that supervision of senior managers is a high priority. When Brav, A., Graham, J., Harvey, C. R., Michaely, R., 2005. Payout policy in the 21st century.