The Role of Governance Structure in the Context of Crisis Management: An Empirical Analysis on a German Sample of Non-Family and Family Businesses

201 Pages·2013·1.805 MB·English

by  Pedram Faghfouri (auth.)

The Role of Governance Structure
in the Context of Crisis Management
Pedram Faghfouri
The Role of Governance
Structure in the Context
of Crisis Management
An Empirical Analysis on a German
Sample of Non-Family and Family
Businesses
Pedram Faghfouri
Essen, Germany
Zugl.: Dissertation Wissenschaft liche Hochschule für Unternehmensführung (WHU) –
Otto Beisheim School of Management, Germany, 2012

ISBN 978-3-658-00595-5 ISBN 978-3-658-00596-2 (eBook)
DOI 10.1007/978-3-658-00596-2
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Foreword
In 2011, more than 30,000 German companies filed for bankruptcy. Of these,
more than 99 percent fell into the group of small and medium sized companies
which are predominantly made up of family firms. These figures are alarming
especially for those firms focusing not only on financial gains but also on striv-
ing towards preserving their socio-emotional wealth.
Management research – and common sense – proves that preparing for crises
can make the difference once a crisis occurs. Those firms with early warning
systems in place and an overall crisis readiness are more likely to survive a criti-
cal situation than those ill-prepared. And this is not only because early warning
signs are identified earlier or predefined plans carried out faster. It is the mere
dealing with the possibility of a crisis and the constant testing and revision of
plans that help people to “roll with the punches” as Mitroff and colleagues once
nicely put it.
While research has been engaged in looking into the causes of crises and
while we have first insights into the actual crisis management process, little is
known about the pre-crisis phase. This is especially true for family firms. There
is some evidence about the causes of crisis in family firms, such as inadequate
governance mechanisms, problems due to the personality of the owner or
strained relationships between owner family members. Furthermore, since the
work done by Cater and Schwab (2008), we have some ideas about how family
firm characteristics influence turnaround management. But we know almost
nothing about if and how family firms prepare for future crises and about their
crisis readiness compared to non-family firms.
This was the motive for Pedram Faghfouri to look deeper into the field of
turnaround management, and especially, of turnaround management in family
firms. After giving an extensive overview of the research field he pursues the
question whether significant differences between family and non-family firms
exist in terms of how they cope with the pre-crisis phase. Furthermore, his work
attempts to provide a more fine-grained picture of the crisis readiness of family
firms by taking governance differences into account.
VI Foreword
Based on evidence from 218 German family and non-family firms the author
shows that family firms are indeed less prepared for future crises than their non-
family counterparts. But, and that is the good news for all family firms, this
difference diminishes if control bodies are in place such as advisory or super-
visory boards.
To summarize, the dissertation of Pedram Faghfouri is highly interesting to
both family firm managers and management scholars alike. Practitioners find a
solid argumentation for setting up a comprehensive crisis readiness system and
get to know why and above all how to overcome obstacles to introducing such a
system. Management scholars find, among other things, one of the first models
of pre-crisis readiness together with a complementing set of propositions for
future empirical examination. This doctoral dissertation will therefore surely find
the wide audience that it deserves.
Prof. Dr. Andreas Hack
Acknowledgement
My dissertation would not have been finished without the support of many
people. I want to thank them here.
First, my deepest thanks go to my doctoral supervisor Prof. Dr. Andreas Hack,
whom I could always rely upon and who has been supporting me since the very
beginning. I have learned a lot from him, both methodically and content-wise,
but also personally. I never took it for granted that I was completely free in
choosing my research topic while I was supported by him until the very last day.
Furthermore, I´m eternally grateful for the inspiring research visit at New York
University – Stern School of Business (NYU Stern) where he enabled me to
conduct my research under his generous sponsorship. During this research visit I
was able to achieve notable progress with my dissertation and had a memorable
time.
I would like to thank Prof. Franz W. Kellermanns of the University of Ten-
nessee Knoxville for inviting me to a visit to his university, during which I re-
ceived invaluable advice from him with regards to my data analysis and statisti-
cal methods. Without him, my data analysis would not have been like it is today,
and I´m very grateful for this.
From NYU Stern I would like to thank Prof. Yakov Amihud for the invitation
as a visiting scholar at the Department of Finance and for his valuable hints
which improved my dissertation. I also want to thank his colleagues
Prof. Edward I. Altman and Prof. Viral V. Acharya for their exchange of
thoughts and their advice.
I would also like to thank Prof. Dr. Utz Schäffer from WHU for accepting the
role as second chair supervisor.
I would like to thank my department colleague Dr. Nils Kraiczy for his
helpfulness, dependability and for the friendly, entertaining time we experienced.
I would like to thank my first supervisor and mentor after my graduation,
Dr. Hans-Elmar Döllekes, for the pioneering, informative and memorable years
in the management consulting industry, for the imparting of practical knowledge
to my dissertation topic, and for the encouragement of writing a dissertation
since our first meeting.
VIII Acknowledgement
Often understated is the importance of good and true friends. I’ve known for
many years that I could count on, in any situation, a few certain old friends,
among others Jan-Philip Stender and Philipp Ballhausen. Without these friends,
the last few years would not have been nearly as memorable. In addition, I would
like to thank my former consulting colleague, Dr. A-Ram Jo, for the many
valuable tips before and during the writing of the dissertation, and for an always
open ear while enjoying a delicious Asian meal.
I also wish to thank the family Dulac – Pari, Christopher und Alexander, for
the support and memorable time I had with them in New York.
My own family has, during this thesis as ever before, always supported and
encouraged me. So I would like to especially thank my older brother Shayan,
who always inspired me with his entrepreneurship and his knowledge, and for so
much that I have learned from him not only in his company. I also wish to thank
my oldest brother Peyman for his unconditional commitment as well as his
endless efforts to hold the family together for years, partly at the expense of his
own privacy and freedom.
Should there be some sort of a parental duty to promote, this my parents have
already fulfilled by saving me from a politically and socially difficult environ-
ment. They deserve my eternal gratitude. May this dissertation give them back a
small, insignificant part of what I received from them over the past 30 years.
This dissertation is dedicated to my father, whose passionate entrepreneurship
first ignited my interest in management after my first internship in one of his
companies, and whose entrepreneurial power I will never come close to.
Last and most importantly, I would like to thank from my heart my longtime
and patient companion and my doctoral colleague, Evelyn, without whose
loving, generous and wise support I would not have survived the last half year of
the dissertation. Thanks to her, the past years of my life have always been
marked by love, fulfillment and joy.
Pedram Faghfouri
Table of Contents
Foreword .............................................................................................................. V
Acknowledgement ............................................................................................. VII
List of Figures .................................................................................................. XIII
List of Tables ..................................................................................................... XV
List of Abbreviations ...................................................................................... XVII
1 Introduction ................................................................................................. 1
1.1 Motivation ............................................................................................. 1
1.2 Research goals ...................................................................................... 6
1.3 Definition of family businesses ............................................................. 7
1.4 Structure of the dissertation .................................................................. 8
2 Turnaround Management – State of the Art ............................................ 9
2.1 Abstract ................................................................................................. 9
2.2 Introduction ........................................................................................... 9
2.3 Crisis and its causes ............................................................................ 11
2.4 Models of turnaround management .................................................... 17
2.5 Success factors of turnarounds ............................................................ 25
2.6 Recommendations for future research ................................................. 32
3 Crisis management in family businesses
– a comprehensive model and research agenda ...................................... 39
3.1 Abstract ............................................................................................... 39
3.2 Introduction ......................................................................................... 39
3.3 Introducing Pearson and Clair’s model of crisis management ............ 42
3.4 Why crisis management in family businesses differs.......................... 46
3.5 A model of crisis management for family businesses ......................... 55
3.6 Call for empirical research .................................................................. 66
X Table of Contents
4 Empirical studies: Methods and sample ................................................. 69
4.1 Methods .............................................................................................. 69
4.1.1 Linear regression ..................................................................... 69
4.1.2 MAN(C)OVAs ........................................................................ 71
4.2 Sample ................................................................................................ 72
5 How family members in the TMT and the existence of
supervisory boards affect EWSs in family businesses .......................... 77
5.1 Abstract ............................................................................................... 77
5.2 Introduction ......................................................................................... 77
5.3 Theoretical basis ................................................................................. 80
5.3.1 UET and EWSs ........................................................................ 80
5.2.2 Family influence in the TMT and EWSs ................................. 83
5.3.3 Family business supervisory boards and EWSs ....................... 86
5.3.4 Family business TMT influence, supervisory boards
and EWSs ................................................................................ 88
5.4 Method and research design ................................................................ 89
5.4.1 Sample ..................................................................................... 89
5.4.2 Measures .................................................................................. 90
5.4.2.1 Dependent variables .................................................. 90
5.4.2.2 Second-order CFA ..................................................... 91
5.4.2.3 Independent variables ................................................ 95
5.4.2.4 Control variables ....................................................... 96
5.5 Empirical results ................................................................................. 96
5.6 Discussion and conclusion ................................................................ 100
5.7 Limitations ........................................................................................ 102
5.8 Implications for further research ....................................................... 103
6 Differences in the crisis readiness of family and
non-family businesses – does a supervisory board matter? ................ 105
6.1 Abstract ............................................................................................. 105
6.2 Introduction ....................................................................................... 105
6.3 Hypotheses ........................................................................................ 107
Table of Contents XI
6.4 Method and research design .............................................................. 110
6.4.1 Sample ................................................................................... 112
6.4.2 Measures ................................................................................ 113
6.4.2.1 Dependent variables ................................................. 113
6.4.2.2 Independent variables .............................................. 115
6.4.2.3 Control variables ...................................................... 115
6.5 Empirical results ............................................................................... 116
Additional findings in post hoc analysis ........................................... 121
6.6 Discussion and conclusions .............................................................. 123
Discussion of additional findings in post hoc analysis ...................... 124
6.7 Limitations ........................................................................................ 125
6.8 Implications for further research ....................................................... 127
7 Summary ................................................................................................. 129
8 References ................................................................................................ 133
9 Questionnaire applied in this dissertation ............................................ 163