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Boards of Directors in Family Firms: An Exploratory Study of Structure and Group Process
Cristina Bettinelli Family Business Review 2011 24: 151 originally published online 10 May 2011 DOI: 10.1177/0894486511402196 The online version of this article can be found at: http://fbr.sagepub.com/content/24/2/151
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Boards of Directors in Family Firms: An Exploratory Study of Structure and Group Process
Cristina Bettinelli1
Family Business Review 24(2) 151169 The Author(s) 2011 Reprints and permission: http://www. sagepub.com/journalsPermissions.nav DOI: 10.1177/0894486511402196 http://fbr.sagepub.com
Abstract Offering an integrated approach, this study examines the relationship between board composition and board processes in Italian family businesses. The potential beneficial effects of outside board members on board processes such as effort norms, cohesiveness, and use of knowledge and skills are highlighted. Using a sample of 90 family business directors, it was found that boards with outside directors are perceived as more committed to the boards tasks (i.e., higher effort norms) and more cohesive. Boards of older companies with outside directors are percevied as more capable of using knowledge and skills. Keywords board of directors, family firms, processes, outside directors
Introduction
This article examines the relationship between board composition and board processes in family firms. In particular, using a sample of family business boards that meet regularly, I focus on the effect of outside directors (i.e., those who do not belong to the family, the business, or the ownership group) on board meetings processes. During the 1980s and 1990s, when the academic study of corporate governance first reached critical mass, research on boards of directors commonly focused on understanding the firm-level implications of board structure and composition. For example, one stream of this research explored the relationship between board size and firm performance (Dalton, Daily, Johnson, & Ellstrand, 1999). Over time, however, research on such linkages yielded few conclusive insights. Indeed, a series of meta-analytic reviews led Dalton, Daily, Ellstrand, and Johnson (1998) to conclude that there is little evidence of systematic governance structure/financial performance relationships (p. 269). Around the beginning of the last decade, some scholars began to recognize that the effects of board structure and composition on firm performance were probably more indirect and complex
than many prior studies had considered. Accordingly, scholars began to pay closer theoretical and empirical attention to the effects board structure and composition might have on a more immediate set of outcomes: the processes by which boards of directors interact with one another (Forbes & Milliken, 1999; Westphal, 1999). In the decade that followed, empirical work has continued to seekand find support fora variety of linkages between board structure and composition and the processes by which board members interact with one another (e.g., Gabrielsson & Huse, 2004; Wan & Ong, 2005). At the same time, relatively few studies have explored the implications of board structure and composition in the specific context of family firms (Uhlaner, Wright, & Huse, 2007). In one such study, Klein, Shapiro, and Young (2005) found that, among the family firms in their
University of Bergamo, Bergamo, Italy
Corresponding Author: Cristina Bettinelli, Entrepreneurial Laboratory, Departement of Business Administration, University of Bergamo, Via Dei Caniana 2, Bergamo 24127, Italy Email: cristina.bettinelli@unibg.it
152 sample of Canadian firms, board independence was negatively related to firm performance. In their study of Hong Kong firms, Lam and Lee (2008) found that CEO duality (the practice of combining the CEO and Chair positions) was negatively related to firm performance in family firms, whereas it was positively related in nonfamily firms. These examples suggest thatin this context, as in otherswe could deepen our understanding of the implications of board structure and composition by paying more direct attention to the processes by which board members interact with one another. This article contributes to the literature on family business governance by extending our understanding of the effect of outside directors on family business boards processes. In doing so, I take up the challenge offered by Chrisman, Kellermanns, Chan, and Liano (2010) to more fully investigate the composition, functioning, and policies of boards of directors in family businesses (p. 20). More specifically, I analyze a sample of Italian family businesses that actively use their boards. Integrating agency, stewardship, and resource dependence theories, I study board processes and show how board composition influences them in family firms, testing my hypotheses in the Italian context. I believe the Italian context serves as an interesting laboratory, because it allows to explore a field that is rich in family businesses and where the institution of family permeates both social and economic behaviors. Italy benefits from abundant social capital (Putnam, 1993) characterized by networks, norms, and trust relationships largely based on strong family ties (Colli, 2006; Dossena, 2009). In the same way, Italian businesses of different sizes and sectors over the past century have shared a common characteristic: They all were developed in a context where behaviors typical of families (care for individuals, paternalism, altruism, longterm tasks) are replicated in behaviors inside the family business with employees and partners (Colli, 2006). Moreover, a variety of factors, such as the Italian states historical reaction to the Great Depression (Aganin & Volpin, 2003), the evolution of Italian law in different settings, corporate niche specialization, and the persistence of local competition (Corbetta, 1998) have led Italian companies to rely on a typical corporate governance model. This Italian model is characterized by the following: the large number of small- and mediumsized enterprises that are controlled by families (Ayyagari, Beck, & Demirgue-Kunt, 2007, Melis, 2000; Molteni,
Family Business Review 24(2) 1997), strong intercompany ties, and a diminished role for capital markets (Aganin & Volpin, 2003; Corbetta, 1998). These features collectively provide an extremely interesting environment in which to study the functioning of family boards of directors. Indeed, as Aganin and Volpin asserted (2003), no country more than Italy epitomizes family capitalism. In such an environment, the typical traits of family boards of directors are easily accessible for study. There are three additionally critical bases for the choice the family business setting to test our hypotheses. First, although family firms are the predominant form of business organization worldwide (Faccio & Lang, 2002; Holderness, 2009; La Porta, Lopez-de-Silanes, & Shleifer, 1999) and make important contributions to gross national products, job generation, and wealth creation (Beckhard & Dyer, 1983; Feltham, Feltham, & Barnett, 2005; Kelly, Athanassiou, & Crittenden, 2000; Shanker & Astrachan, 1996), research on family business boards is almost nonexistent. Second, given that data on family business boards processes is very difficult to retrieve, resulting in a scarcity of empirical knowledge about the functioning of boards in this particular setting, it follows that a specialized focus on family businesses is therefore necessary to provide fresh additional data on this relatively unexplored field. With this article, I provide results based on a unique sample of family business that actively use their boards, data that enable me to offer a clearer, contextualized picture of board processes in this exceptional setting. Third, I focus on family business governance, because, although the subject is understudied, it is generally recognized that it differs from that of nonfamily businesses (Carney, 2005; Chrisman, Chua, & Steier, 2002; Randoy & Goel, 2003) in being characterized, for example, by different decision-making processes (Ensley & Pearson; 2005) and different board structures (Anderson & Reeb, 2004; Corbetta & Salvato, 2004; Huse, 1994). When family businesses use boards, their dynamics differ from those of nonfamily boards (Corbetta & Salvato, 2004; Uhlaner et al., 2007). For example, board members in family firms tend to be more emotionally attached to and more highly interdependent on one another (Cruz, Gomez-Mejia, & Becerra, 2010). In family-owned firms, ownermanager relationships are very close if not indeed overlapping (Gersick, Davis, Hampton, & Lansberg, 1997). I therefore claim that the existing literature on nonfamily businesses cannot be usefully applied to family businesses and that the latter
Bettinelli requires specific attention and analysis (Mustakallio, Autio, & Zahra, 2002).The following section introduces different theoretical perspectives that my research tries to reconcile. This is followed by a section in which I discuss the existing literature and propose my hypotheses. Sections on methods, measures, and results follow thereafter. These lead into a concluding section where I discuss the practical implications of my research as well as outlining some of my studys limitations and offering suggestions for future research.
153 The above-described agency and resource dependence views are complemented by stewardship theory (Davis, Schoorman, & Donaldson, 1997), according to which the pro-organizational motivation of directors can meet with the concurrence of outside and inside directors and shareholders interests to promote value creation for the business (Moran & Ghoshal, 1996). Notwithstanding the potential contributions noted above, there is some theoretical basis for wariness regarding outside directors effect on family business boards (Corbetta & Salvato, 2004; Lane, Astrachan, Keyt, & McMillan, 2006; Lansberg, 1999). First, finance scholars reject the conventional agency view and argue that controlling owners in family firms might extract private benefits from the company to the detriment of minority owners (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 2000; Morck, Shleifer, & Vishny, 1988). Such exploitative behavior, especially when practiced and enforced through board decisions, can generate ownerowner agency costs (Anderson & Reeb, 2003; Villalonga & Amit, 2006). An important factor that gives rise to ownerowner agency costs is board composition and, in particular, the fact that family firms majority owners often appoint a team of directors with the expectation that they will simply ratify decisions rather than actively monitor the management performance (Jones, Makri, & Gomez-Mejia, 2008). In addition, because of their organizational structure (where the family, the business, and the ownership roles overlap), some family businesses are less likely to actively use board meetings to discuss relevant issues, preferring instead informal discussions among insiders only (Gersick et al., 1997). By doing so, they miss the opportunity to exploit outside directors potential contributions. Second, according to the power perspective, board membership is negotiated on the basis of the relative power of the owners (Chua, Chrisman, & Sharma, 1999; Fiegener, Brown, Dreux, & Dennis, 2000), who are not simply investors but are also typically involved as partners (Kumar & Seth, 1998). This negotiation often preempts the selection of skilled and value-adding outside directors. Third, outside members in some cases inadvertently obstruct the effectiveness of the family business board of directors because of their lack of knowledge of the firm and its environment, lack of access to the day-to-day running of the firm and to informally exchanged insider information (Ford, 1988), and lack of authority over insiders (Jonovic, 1989). In
Literature Review
Given the variety of factors that affect board composition and board processes, and given the high degree of interdependence characteristic of boards in family businesses, a multitheoretic approach that goes beyond agency theory is called for (Daily, Dalton, & Cannella, 2003; Lynall, Golden, & Hillman, 2003; Zahra & Pearce, 1989). Board composition and board processes are best explained and described by combining a mix of models that over time have been invoked by family businesses researchers (e.g., Corbetta & Salvato, 2004; Gabrielsson, 2007; Huse, 2000; Voordeckers, van Gils, & van den Heuvel, 2007). Family firms are viewed positively in Jensen and Mecklings (1976) seminal work on agency problems. Agency problems arise when managers (agents) act in pursuit of aims that are in conflict with those of owners (principals). The potential for these problems to arise is reduced in family firms where owners are often also managers (i.e., owner-managers) and where there is in general more alignment of the owner-managers interests with the firms long-term perspective. Because of their long-term attachment to the firm, family ownermanagers are more inclined to monitor and discipline the whole firm and to avoid misuse of resources (Fama & Jensen, 1983). Thus, agency costs are minimized, and there is no need for outside directors to monitor management. On the other hand, from the perspective of resource dependence (Pfeffer & Salancik, 1978), outside directors are actors whose access to knowledge and control of valuable external resources or influential groups can be highly beneficial for the board and the company, since they provide the business with human, relational, and information capital (Hillman & Dalziel, 2003; Zahra, Filatotchev, & Wright, 2009).
154 conclusion, as illustrated above, the presence of outside directors can affect a family business both positively and negatively. To reconcile these competing views, Anderson and Reeb (2003, 2004) investigated the outside director role from the multiple perspectives of agency, stewardship, and resource dependence theories. Focusing on familycontrolled firms in the S&P 500, they reached the conclusion that founding family ownership, if balanced and tempered with outside directors, appears to be a particularly effective organizational structure (Anderson & Reeb, 2004, p. 233). In particular, outside directors can play a substantial role in mitigating conflicts of interest amongst shareholders (p. 233). They can act to alleviate the negative effects of conflicts among different owners and family groups and, by standing apart from such insider conflicts, play the role of protecting and promoting corporate welfare among family shareholders (p. 232). Therefore, outside directors can increase a boards ability to control agents, to behave as good stewards, and to access external resources. As Ng and Roberts (2007) assert, outside directors may contribute to the family business not only by discouraging or inhibiting expressions of factional self-interest (La Porta et al., 2000) but also by arbitrating internal disagreements and thus minimizing value-reducing behaviors (Ng & Roberts, 2007, p. 290). In this article, I focus on private family-held companies and claim that the positive effects of outside directors found by Anderson and Reeb (2004) on public family-controlled firms can be seen also in private family firms under the condition that the board is actively used as a governance instrument. In a recent review of the family business literature, Chrisman et al. (2010) observe that although there has been some work that has considered the boards of directors in family firms (Chrisman, Chua, & Litz, 2004; Schulze, Lubatkin, Dino, & Buchholtz, 2001), they seem to suggest that these boards do not work particularly well or at least their composition has little positive impact on family firm performance. (p. 20) In this article, I argue that the literature has not been able to shed light on these relationships because of a dearth of data regarding board processes in family businesses that actively use their boards. To fill this informational gap, it is important to select a sample of
Family Business Review 24(2) real board users in order to build an accurate picture of how boards actually function in family firms. I follow Forbes and Milliken (1999) and Pettigrew and McNulty (1995, 1999) in calling for more attention to board processes and present the results from a sample of private family-held companies that actively use a board of directors.
Hypotheses Outside Directors and Effort Norms

The term effort norms refers to a groups shared beliefs regarding the level of effort each individual is expected to put forth toward a task (Wageman, 1995). Norms exert a powerful and consistent influence on how people behave, especially in cases where those norms facilitate task accomplishment in interdependent groups (Feldman, 1984). Researchers have recognized that in family firms, given the overlapping of ownership and management roles, it often happens that board directors are also managers and/or owners. This affords inside directors and the CEO significant influence over the appointment of outside directors (Finkelstein & Hambrick, 1988; Gersick at al., 1997; Lansberg, 1999). Accordingly, CEOs tend to exert their influence over director selection to favor the appointment of personal friends with whom they share or have shared close social ties. In addition, because board appointments confer prestige, as well as financial rewards, social ties are created through the appointment process itself. Thus, even if outside board members are formally independent of top management, potent psychological and social elements can have an effect on board working processes. On one hand, outside directors are generally perceived as being less vigilant regarding the behavior of top managers with whom they have close personal ties, which militates against a high level of activity and involvement (e.g., Fredrickson, Hambrick, & Baumrin, 1988; Spencer, 1983; Walsh & Seward, 1990; Westphal, 1999). On the other hand, taking into account the norms of reciprocity, outside directors should feel socially obligated to help and support the CEO and directors who favored their appointment, and this is not necessarily congruent with helping the firm (Wade, OReilly, & Ghandratat, 1990). Moreover, outside board members are motivated to protect their reputations, and hence to show that they add value to the boardfactors that will tend to promote active engagement in board business.
Bettinelli Empirical researchers have demonstrated, for example, that including more outside directors on a board can increase board involvement and effort (Judge & Zeithaml, 1992; Vilaseca, 2002). A key factor giving rise to strong norms in any group is the desire by group members to avoid embarrassing interpersonal problems (Feldman, 1984), such as those that arise when individuals in the group suffer a loss of face or self-image (Goffman, 2005). Within the board of directors of a family firm, the presence of outsiders is likely to heighten the motivation of all parties on the board to avoid the embarrassment associated with the revelation of low levels of board effort. Family members, in particular, will want to be taken seriouslythat is, to ensure that nonfamily members perceive the board as a meaningful governance mechanism, one that plays a substantive and constructive role in firm affairs. Nonfamily members, too, are more likely to help establish strong norms in the presence of other nonfamily members. For example, Jehn, Northcraft, and Neale (1999) reported that demographic diversity was positively correlated to commitment when task interdependence was high. This pattern of findings was also supported by other scholars (e.g., Van der Vegt & Janssen, 2003). Therefore, as Fama and Jensen (1983) observed, outside directors have incentives to develop reputations as competent participants in the governance process. Thus, I propose that the presence of outside directors will have the effect of increasing effort norms among the insiders to show that the board is doing well, consequently enhancing effort norms among all directors. Hypothesis 1: The proportion of outside directors on the board of a family firm will be positively related to the strength of the boards effort norms. Effort norms set expectations among group members regarding the level of engagement they will put forth into board tasks. These norms are related to the boards cohesiveness, which will be analyzed in the following hypothesis.
155 1999). Cohesion can have complex implications for board task performance: On one hand, it is likely to foster effective board performance by facilitating communication and mitigating the potentially detrimental effects of task-related conflict (Jehn & Bendersky, 2003); on the other hand, very high levels of board cohesion may lead to groupthink and thereby inhibit effective boardroom deliberations. In either event, cohesion represents an important board-level outcome in its own right insofar as low levels of cohesion can determine high board turnover. Overall, I expect that moderate to high levels of cohesion are desirable for boards of directors, for two reasons: first, cohesion is likely to diminish the potential for interpersonal conflict, which has been shown to have unambiguously negative implications for board task performance (De Dreu & Weingart, 2003); and second, recent meta-analyses (Beal, Cohen, Burke, & McLendon, 2003; Gully & Devine, 1995) offer forceful evidence that cohesion is significantly related to team performance. This relationship should be stronger when team interdependence is high (Barrick, Bradley, Kristof-Brown, & Colbert, 2007; Beal et al., 2003), as it is the case of family business boards (Cruz et al., 2010). In addition, and perhaps contrary to common assumptions, I believe that the presence of outside board members is likely to foster cohesion within the boards of family firms. This is because family members will be motivated to manage internal conflicts (i.e., conflicts among different members, branches, or generations of the same family) in a more constructive manner, in order to avoid embarrassing the family in the presence of nonfamily members (washing ones dirty laundry in public). Second, to the extent that outside directors in family firms are likely to be serving at the request of the controlling family (and not, as is sometimes the case with outside directors in nonfamily firms, as members whose board power is rooted primarily in ownership or voting power), they are themselves likely to be motivated to foster and maintain a cohesive board environment. Moreover, Janis (1982) claims that when the interactive effects of social and task cohesion are considered, high levels of cohesiveness do not necessarily lead to groupthink. The above discussion leads me to propose that to the degree that boards are highly interdependent (as in family business boards) and work toward a common goal (i.e., board effectiveness), the presence of outsiders will facilitate intergroup contact and solidarity (Gaertner &
Outside Directors and the Board Cohesiveness

Board cohesion refers to the degree to which board members are positively engaged with each other and motivated to remain on the board (Forbes & Milliken,
156 Dovido, 2000). I also posit thatas family firms hire outside directors when they need themthe board will be generally motivated to overcome disruptive tendencies and exhibit high levels of cohesion both of which increase board usefulness. Moreover, as noted above, in family businesses, outside board members generally feel motivated to support the insiders who are usually responsible for their nomination to the board (Daily & Dalton, 1995). Recent research supports the view proposed in this paper. In particular, Anderson and Reeb (2004) empirically demonstrated the importance of outside directors (whose only tie to the family firm was their directorship) in moderating the familys power and hence managing internal conflicts. In addition, through processual analysis of critical incidents, Ng and Roberts (2007) found that outside directors such as nonexecutives can be fundamental in mediating between the family and firm systems. Ng and Robertss findings suggest a more benign, adjudicating and counseling role for outside directors. Indeed, in the family firms, their presence and interventions as a neutral third party allow competing interests to be addressed and reconciled (p. 305). I therefore propose the following: Hypothesis 2: The proportion of outside directors on the board of a family firm will be positively related to board cohesion. The degree to which board members can work as a real and united team is also related to how well board members use and share knowledge and skills; I will analyze this aspect in the following hypothesis.
Family Business Review 24(2) skills is likely to be especially critical in interdependent groups charged with complex tasks, such as those involved in identifying and solving organizational problems (DeChurch & Mesmer-Magnus, 2010). According to the information/decision-making perspective (Williams & OReilly, 1998), the enlarged range of resources such as knowledge and skills that diversity affords can enhance team outcomes. Diversity and richness of human capital are higher in teams composed of heterogeneous members (Homan et al., 2008; Kearney, Gebert, & Voelpel, 2009). Moreover, in heterogeneous groups, knowledge and skills are more likely to be effectively used when group members are more aware of each others human capital (Kearney et al., 2009). Social ties between outside and inside directors should enhance mutual trust, encourage the propensity of insiders to seek advice and increase outsiders propensity to offer such advice (Westphal, 1999). On the other hand, the social categorization perspective posits negative effects stemming from diversity based on the idea that people prefer to work with those whom they perceive as similar to rather than different from themselves (Williams & OReilly, 1998). Thus, the presence of outside board members may give rise to adverse social categorization processes that impair team performance. In this article, I argue that homogeneous boards (i.e., those exclusively composed of insiders) use their knowledge and skills less effectively than heterogeneous ones. For example, even if a group of insider directors enjoys engaging in in-depth discussions and analyses of issues, such discussions will be more likely to center on shared rather than unshared knowledge and skills (Brodbeck, Kerschreiter, Mojzisch, & Schulz-Hardt, 2007). In contrast, the inclusion of outside members on boards heightens the groups collective awareness of its aggregate human and knowledge capital, and thus members are likely to stimulate each other to articulate and discuss certain beliefs and assumptions that are taken for granted among family members but are not otherwise widely shared. This can make the board more likely to produce alternatives to creatively solve complex problems, reduce groupthink, and ultimately increase the quality of decisions (Cannella, Park, & Lee, 2008, p. 770) and more willing to acknowledge new ideas and discuss them (Cho & Hambrick, 2006, p. 457). For example, Tuggle, Schnatterly, and Johnson (2010) found background heterogeneity to be positively associated with a boards discussion of entrepreneurial
Outside Directors and the Use of Knowledge and Skills

By use of knowledge and skills, I refer to the process by which members contributions are incorporated into the functioning of a board of directors (Hackman & Morris, 1975). Board heterogeneity can be seen as the stocks of human capital available to the board, and hence, the use of knowledge and skills can be seen to represent the flow of that capital into the board. My measurement of the use of knowledge and skills is thus meant to capture the extent to which the board taps into and applies the human capital members bring to the table. The effective use of members knowledge and
Bettinelli issues. Kearney et al. (2009) found that age and educational diversity are positively related to the degree to which task-relevant information is discussed and elaborated. I propose that family businesses open their boards to outside directors in order to exploit the knowledge and skill sets these outsiders bring to the table. Research suggests that it is possible to tap the positive effects of diversity while minimizing the dysfunctional effects associated with heterogeneity. For example, research shows that the degree to which individuals contribute knowledge and skills to a team is determined by their motivation to do so and that teams with members from the outside increase their opportunity to learn new ways to think about problems (Cacioppo, Petty, Feinstein, & Jarvis, 1996; Chaiken & Trope, 1999). Finally, as explained above, it was found that the outcome interdependence that is typical of all teams reinforces common group goals that decrease the negative effects of diversity and in turn increase the effective use of knowledge and skills (Schippers, Den Hartog, Koopman, & Wienk, 2003). I therefore propose the following: Hypothesis 3: The proportion of outside directors on the board of a family firm will be positively related to the boards use of knowledge and skills.
157 organizational structures and processes over others (Churchill & Lewis, 1983; Greiner, 1972). Younger firms tend to implement informal, centralized, and basic decision-making processes, whereas directors appear to play more active roles as firms get bigger and older (Boulton, 1978; Dyer, 1986). As family businesses grow, they face a greater variety of issues and more complex problems, which leads CEOs to extend their informationprocessing capacities by relying more on their boards of directors. For example, Fiegener (2005) found that boards are more likely to participate in decision-making processes when firms are larger. In addition, the empirical findings of Judge and Zeithaml (1992) support the idea that the strategic involvement of boards deepens as the firm gets older. It is therefore likely that the benefits of outside directors can be seen more as the family business increases both in age and size. Hypothesis 4: Family business size and age affect the relationship between the outside directors and board processes (effort, cohesion, and use of knowledge and skills): To wit, bigger and older companies derive greater benefit from the presence of outside directors.
Method
I tested my predictions using cross-sectional data from Italian family business directors. My target sample consisted of directors who sit on the main board1 of a given family business. As context matters, I decided to limit my attention geographically to Italy, which, despite being highly entrepreneurial (Colli, 2003), has been often neglected in the corporate governance literature. My focus on a single country is also because of the fact that the norms of corporate governance can vary significantly across countries, and regional or national regulations and laws have varying impact on organizational strategies (Greenwood, Daz, Li, & Lorente, 2009). Family business is defined here as any business, large or small, public or privately owned, whose ownership is controlled by a single family and where two or more members of the same family significantly influence the business through their kinship ties, management and/or governance roles, or ownership rights (Tagiuri & Davis 1982). Reliable information on family firms is extremely difficult to gather for a number of reasons
Moderating Effects of Family Business Age and Size

As recent literature highlights, in family businesses, there can be varying degrees of overlap between the roles of owners and management, ranging from the small owner-managed firm to the large extended familyowned firms where management is entirely distinct from owners (Uhlaner et al., 2007). They also vary in terms of age and life cycles, from the young and entrepreneurial to the multigenerational established and more complex family business (Gersick et al., 1997). This implies that board structure and functioning can differ significantly among family firms of different ages and sizes (Gersick et al., 1997; Bettinelli, 2009), which points to the need to treat these nuances between different types of familyowned firms more carefully (Uhlaner et al., 2007, p. 232) in any study of family business structures. Organizational life cycle scholars also propose that different stages of development support some
158 (Schulze, Lubatkin, & Dino, 2003; Wortman, 1994). Public information is lacking because most family firms are privately held and operate under no legal obligation to disclose information. Chamber of commerce lists are also of little use because family-managed firms are not listed as a separate category of business organization. Hence, there is no reliable way to identify family firms a priori (Daily & Dollinger, 1993). A comprehensive list of all the family-run companies in Italy is not available.2 Moreover, it is almost impossible to distinguish a priori which companies actively use their boards of directors and which have merely a paper board. Given these difficulties, the so-called snowball sampling approach offers significant advantages (Biernacki & Waldorf, 1981; Saunders, Lewis, & Thornhill, 2007).3 This procedure has been used in the past in family business studies (e.g., Fiegener, Brown, Prince, & File, 1996; Lazerson, 1995; Venter, Boshoff, & Maas, 2005) and also in studies of boards of directors, where it has been recognized that access to managerial elites can be facilitated by connections made through high-status members of such elites (Pettigrew & McNulty, 1995). Even if this method seems to be the only possibility when populations are difficult to identify (Saunders et al., 2007, p. 233; Tepper, 1995), it admittedly presents disadvantages in the sense that it hinders the generalizability of results. Overall, my work is exploratory and aims to shed some light on this unexplored and fascinating segment of family business boards. I also recognize that, as Lee (1993) asserts, the risk of bias is high, because it is likely that participants will tend to know about and identify firms similar to themselves, leading to a homogeneous sample. As I show in the next section, even if the sample is composed entirely of participants who belong to the category of family business board member, there is variation within the sample in terms of company and respondents perspectives (e.g., with respect to company size, sector, and top management team composition). I selected the sample by making initial contacts with a small group of respondents relevant to the research topic (i.e., directors from family businesses that actively use the board). The names and contact information for these people were retrieved with the help of the Italian branch of the worldwide Family Business Network, which goes by the acronym AIdAF, or Associazione delle Aziende Familiari. I then used these initial
Family Business Review 24(2) contacts to establish contacts with others, asked these people to identify further cases, asked these new cases to indicate additional new cases, and so forth. A questionnaire was distributed and gathered personally by the author who assisted respondents in case of need. My sample selection procedure led me to obtain a final sample of 90 responses. The board members who served as key informants for the survey held various positions in their respective companies: I received responses from 44 CEOs,4 17 outside board members, and 29 ordinary directors. A total of 18 respondents are females, and 72 are males. On average, respondents were 48.80 years old. The average board in this sample is composed of 5 members and 18% of members are outsiders. On average, the companies were 50 years old and had 143 employees. They represent various industries related to manufacturing (60%) and services (40%). Since a welldefined population does not exist, I cannot explore the potential for nonresponse bias. As indicated, my respondents (one for each company) filled different roles on their boards (i.e., CEOs, outside, and ordinary). This allowed me to control for role effects on respondents perceptions. While accounting for respondents particular roles, I needed to ensure also that each respondent accurately represented the entirety and reality of the board to which he or she belonged. In accordance with recent studies of group-level phenomena (e.g., Blum, Fields, & Goodman; 1994; Forbes, Korsgaardand, & Sapienza, 2010; Simsek, Veiga, Lubatkin, & Dino, 2005), I therefore gathered data from the fellow board members of a subset of family businesses to assess the reliability and validity of respondents assessments. I solicited responses from identifiable board members at every family business board for which I had already received a questionnaire. In all, 20 board members responded, providing a set of secondary respondents for 22% of the firms in the final sample. To assess the reliability of the first respondents, I calculated intraclass correlation coefficients (ICCs) of their responses with those of the secondary respondents. ICC checks the extent to which one rater is as reliable as any other from the same board. An ICC(1) greater than .12 indicates acceptable reliability (Bliese, 2000). ICCs for my perceptual measures all exceeded this criterion: cohesion = .56, p < .01; effort norms = .46, p < .05; use of knowledge and skills = .57, p < .01. This means that there was acceptable between-group variance among
Bettinelli boards, and the first respondents were reliable informants for perceptions of board processes. I used ordinary least squares (OLS) regression methods to test the hypotheses developed, after mean centering the independent variables to reduce multicollinearity in moderated regressions (Aiken & West, 1991).
159 the use of knowledge and skills. The scale exhibited Cronbachs alpha of .76. Independent and control variables. The principal independent variable, the proportion of outsiders, was measured as the number of outside directors divided by the total number of board members. The control variables included top management team (TMT)5 composition, company age, company size, and respondent role on the board. TMT composition was measured by asking respondents whether the TMT was composed entirely of family members (1 = yes, 0 = no). Company age was measured as the number of years since the firms founding, and company size was measured as the number of persons employed by the firm. The latter variable was transformed logarithmically and mean centered. I controlled for respondents roles by using three dummy variables related to whether the respondent was the CEO, an outside board member, or an ordinary member (i.e., non-CEO, nonoutside member). I included in my model the first two dummies. To test the hypothesis on moderation (Hypothesis 4), I included in the model the variables company age proportion of outsiders and company size proportion of outsiders.
Measures
Measures were adapted from existing and validated scales from the literature wherever available. I measured variables in the following manner. Cohesion. Cohesion was measured using the fouritem cohesion index developed by Seashore (1954) and subsequently used by OReilly, Caldwell, and Barnett (1989). Using a 4-point scale, respondents indicated the extent to which board members: (a) were ready to defend each other from criticism by outsiders, (b) helped each other on the job, (c) got along with each other, and (d) stuck together. The response options ranged from not very well (rated 1) to great, couldnt be better (rated 4). These items were averaged to form an index of cohesion. The scale exhibited Cronbachs alpha of .74. Effort norms. I measured effort norms by drawing on the example provided in Wagemans (1995) study. Specifically, I asked board members to rate, using a 5-point scale, the boards degree of support for the following behaviors: (a) actively performing the directorship role, (b) encouraging most members to participate actively during meetings, (c) taking notes during meetings, (d) researching issues relevant to the company to better inform board discussions, and (e) carefully scrutinizing the information provided by the firm prior to the meetings. These items were averaged to form an index capturing effort norms. The scale exhibited Cronbachs alpha of .87. Use of knowledge and skills. Following Forbes and Millikens (1999) suggestions, I measured the boards ability to use its knowledge and skills by asking board members to assess, using a 5-point scale, the validity of five statements: (a) People on this board are aware of each others areas of expertise; (b) When an issue is discussed, the most knowledgeable people generally have the most influence; (c) Task delegation on this board represents a good match between knowledge and responsibilities; (d) Board members freely exchange information; and (e) Directors knowledge and skills are coordinated to achieve more constructive discussions. These items were averaged to form an index capturing
Results
Descriptive statistics and correlations are presented in Table 1. Some interesting correlations among the variables deserve to be highlighted. Proportion of outside directors is significantly correlated with the board cohesion (positively) and with board effort (positively). As the table shows, correlations among the independent variables suggest that multicollinearity is unlikely to be a problem. These correlations are consistent with my initial expectations. All hypotheses were tested using hierarchical OLS regression analysis. As is customary, control variables and main effects were entered first. I added multiplicative terms later to examine the hypothesized interactions. Tables 2, 3, and 4 report the results from the regression analysis, respectively, with respondents perceptions of board level of effort, of cohesion, and of use of knowledge and skills (Table 4) as the dependent variable. In Tables 2, 3, and 4, models numbered 1 include only the control variables. No significant coefficients emerged for the control variables other than in Table 3 (columns 4, 5, and 6) where it emerges that the presence of a TMT entirely composed of family members is positively related to board cohesion, a result to
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Mean 1 1,00 0,16 0,30** 0,20 0,11 0,05 0,07 0,01 0,10 0,06 0,07 1,00 ,42** 1,00 0,04 0,10 1,00 0,13 ,26* 0,08 0,09 0,15 ,27** ,29** ,24* ,28** ,30** 0,09 0,09 0,10 0,02 ,31** 0,13 0,04 ,23* 0,10 0,01 0,11 1,00 ,47** ,21* 0,12 0,15 ,30** 0,16 2 3 4 5 0,28 50,82 143,57 0,19 0,49 0,19 0,01 0,02 3,04 3,83 3,85 0,45 29,90 163,06 0,25 0,50 0,39 0,20 0,22 0,58 0,83 0,68 Std. Deviation 6 7 8 9 10 11 1,00 ,34** ,25* 0,12 0,16 0,07 1,00 ,50** 0,03 0,04 0,18 1,00 0,10 1,00 0,14 ,35** 1,00 0,18 ,29** ,70** 1,00
Table 1. Correlations
1.Top Management Team Composition 2.Company Age 3.Company Size 4.Proportion of Outsiders (centr) 5.Respondent = CEO 6.Respondent = Outside Director 7.Company age proportion of outsiders 8.Company size proportion of outsiders 9.Board Cohesion (centr) 10.Board Effort (centr) 11.Board Use of Knowledge and skills (centr)
**. Correlation is significant at the 0.01 level (2tailed). *. Correlation is significant at the 0.05 level (2tailed).
Bettinelli
Table 2. Effort
MODEL (Constant) Top Management Team Composition Company Age (log centr) Company Size (log centr) Proportion of Outsiders (centr) Respondent = CEO Respondent = Outside Director Company age Proportion of outsiders Company size Proportion of outsiders Adjusted Rsquare F R2 F for R2 1 0,05 0,15 0,16 0,00 2 0,10 0,07 0,13 0,02 0,73* 3 0,15 0,03 0,14 0,10 0,86* 0,60*** 4 0,21 0,01 0,14 0,08 0,61+ 0,85*** 0,70** 5 0,14 0,04 0,19 0,10 0,76* 0,84*** 0,81*** 0,81+ 0,24 5,04*** 0,03 3,62+ 6
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0,01 0,64 0,02 0,64
0,02 1,51 0,05 4,08*
0,14 3,94** 0,12 12,81***
0,22 5,11*** 0,08 9,07**
0,27 0,02 0,24+ 0,07 0,69* 0,85*** 0,86*** 0,43 0,78+ 0,27 5,02*** 0,03 3,74+
Table 3. Cohesion
MODEL (Constant) Top Management Team Composition Company Age (log centr) Company Size (log centr) Proportion of Outsiders (centr) Respondent = CEO Respondent = Outside Director Company age Proportion of outsiders Company size Proportion of outsiders Adjusted Rsquare F R2 F for R2 1 0,07 0,16 0,10 0,01 2 0,01 0,25+ 0,13 0,01 0,83*** 3 0,01 0,26+ 0,13 0,04 0,88*** 0,23+ 4 0,13 0,28* 0,13 0,03 0,79** 0,32* 0,25 5 0,11 0,28* 0,12 0,04 0,82** 0,32* 0,27 0,17 0,14 3,02** 0,00 0,30 6 0,16 0,28* 0,10 0,03 0,79** 0,32* 0,30 0,03 0,30 0,14 2,75** 0,01 0,93
0,01 0,74 0,03 0,74
0,10 3,57** 0,12 11,78***
0,13 3,71** 0,04 3,81
0,14 3,50** 0,02 2,18
which we will return later. The hypotheses were tested using OLS regression analyses in which the control variables were entered first (as shown in column 1 of Tables 2, 3, and 4) and the proportion of outsiders was entered in a second step (i.e., in the columns numbered 2), whereas in columns 3 and 4, dummies to control for respondents role were included, and in columns 5 and 6, variables on moderation were included. Results shown in Table 2 provide moderate support for Hypothesis 1, which proposed that the proportion of outsiders would be positively related to the boards effort norms (e.g., in Model 5, Table 2 = .76, p < .05). In Table 2, I find some support for Hypothesis 4, according to which family business size and age moderate the positive relationship between proportion of outside directors and board processes (effort, use of knowledge and skills, and cohesion).
Moderation variables are included in Models 5 and 6, and Table 2 indeed shows that effort is higher when outside directors are board members and when the family firm is older and bigger. The difference in fit between the two models indicates that the moderation variables coefficients go beyond the existent variables in explaining variance; that is, the F test shows a significant increase in R2, which goes from .24 to .27 (p < .05). This means that as the company gets larger and older, the outside directors positive effects can be seen more clearly. Hypothesis 2 stated that a higher proportion of outside directors would be positively related to cohesion. These results appear in Table 3, where the coefficient of the variable proportion of outside directors is significant and positive in all models (e.g., in Model 5, Table 3 = .82, p < .01). In Table 3, the control variable Top Management Team Composition has also positive and significant
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Table 4. Use of Knowledge
MODEL (Constant) Top Management Team Composition Company Age (log centr) Company Size (log centr) Proportion of Outsiders (centr) Respondent = CEO Respondent = Outside Director Company age Proportion of outsiders Company size Proportion of outsiders Adjusted Rsquare F R2 F for R2 1 0,07 0,12 0,12 0,02 2 0,05 0,10 0,11 0,02 0,25 3 0,03 0,08 0,11 0,02 0,30 0,25+ 4 0,17 0,07 0,12 0,01 0,21 0,34* 0,27
Family Business Review 24(2)
5 0,08 0,04 0,17 0,03 0,39 0,34* 0,39+ 0,99* 0,07 1,99+ 0,07 6,67*
6 0,17 0,05 0,21+ 0,02 0,35 0,34* 0,43* 0,73+ 0,54 0,09 2,03+ 0,02 2,16
0,02 0,55 0,02 0,55
0,02 0,58 0,01 0,67
0,00 1,05 0,03 2,88+
0,01 1,13 0,02 1,53
coefficients (e.g., in Model 4, Table 3 = .28, p < .05). In other words, when the TMT is composed exclusively of family members, respondents perceive higher levels of board cohesion. Interestingly, the only board process that is affected by the presence of a family TMT is board cohesion, whereas board effort and board use of knowledge do not benefit from this family business characteristic. This finding is consistent with the family business literature, according to which family members are very concerned with the cohesion issue (Ensley & Pearson, 2005). Indeed, as family members usually start developing a sense of cohesion in childhood (Gersick et al., 1997; Kets de Vries, Carlock, & Florent-Treacy, 2007; Lansberg, 1999), their ability to foster cohesive behaviors in general is higher than their aptitude to foster effort and use of knowledge. Results shown in Table 4 do not support Hypothesis 3, even if all the coefficients related to proportion of outside directors in this table are positive, none of them is significant. Interestingly, the models significant, positive coefficient for the moderation variable company age proportion of outsiders indicates that, as expected, when a family business becomes more mature (i.e., older), the respondents perception of the level of use of knowledge and skill during board meetings increases accordingly. This provides some empirical support to the idea that the beneficial impact of outside directors on the level of use of knowledge and skills strengthen as family firms get older. Indeed, the variable company age proportion of outsiders has a significant and high coefficient (in Model 5, Table 4 = .99 p < .05).
In all tables, Models 3 and 4 introduce two variables that control for the effect of respondents role on the answers that they gave with regard to board processes. CEOs tend to perceive higher levels of board cohesion, effort, and use of knowledge than do ordinary directors. It is well established in the literature that group leaders, and in particular CEOs, tend be optimistic and overconfident in their views (Hayward, Rindova, & Pollock, 2004; Wunderley, Reddy, & Dember, 1998). In addition, overconfidence has been found to operate among the judgments of group leaders (Hayward & Hambrick, 1997; Neale & Bazerman, 1983). Nevertheless my findings show also that when the respondent is an outside director, the assessment of the boards effort and use of knowledge is higher. This interesting finding signals that among all types of board members, the most critical (with regard to board processes) are the ordinary directors, in other words, those who do not hold leadership positions and who are not CEOs nor outside directors. The positive correlation between outside directors roles and how they rate the presence of board processes is fully consistent with the argument in Hypotheses 1 and 3 that outside board members act to increase boards effort norms and use of knowledge and skills.
Discussion and Conclusion

Recent research provides ample evidence that the board of directors is a complex institution, not only in a legal or economic sense but in a social and psychological sense as well. For example, the implications of board structure
Bettinelli and composition are subtle and sometimes defy the traditional explanations that one might derive from an agency theoretic perspective (Westphal, 1999). In privately held firms, and in family firms in particular, there is a need for scholars to bring multiple theoretical disciplines to bear on questions of board governance (Uhlaner et al., 2007). In this article, I have tried to integrate family business research with a relatively recent strand of governance research that seeks to understand more fully how and why board composition affects what boards do in the course of their work. Accordingly, I have focused on an aspect of composition that is specific to the family business context: the presence of outside board members, board members. I have limited my analysis to the Italian case where family capitalism is prevalent (Aganin & Volpin, 2003; Ayyagari et al., 2007; Melis, 2000; Molteni, 1997). I have shown that the analysis of board processes can contribute to my understanding of outside board members effects in family businesses. My findings clearly demonstrate the important benefits derived from the presence of outside board members on a family business board. My theoretical logic and empirical results suggest that reconciling the competing views of agency, stewardship, and resource dependence theories sheds light on how family business boards should be structured. Specifically, I have found that a greater proportion of outside board members is associated with higher levels of functioning of the particular boardlevel processes that are likely to enhance board effectiveness: specifically, effort norms and board cohesion. These findings have implications both for research and practice.
163 on the idea that outsiders typically work for more than one board and interact only sporadically (Forbes & Milliken, 1999). On the other hand, among the rare works on family business boards, there is support for the inclusion of outsiders and evidence that the more outside board members the better for company performance (Schwartz & Barnes, 1991). My findings improve existing knowledge by showing how boards processes benefit from the presence of outside directors. It is crucial to note that these results are based on a sample of boards that are actively used by the family firm. In other words, the benefits of outside directors are observable when certain characteristics of active boards are present: to wit, a high degree of alignment between outside and inside directors goals, a CEO who is willing to listen to the board, and outside directors who are actively engaged with boards activities. Past studies have shown that family firms are more likely to add nonfamily directors under certain conditions. For example, Voordeckers et al. (2007) found that family firms in Belgium were more likely to incorporate outside directors onto their boards if the family members were more focused on business than nonbusiness goals. In addition, Jaskiewicz and Klein (2007) showed that goal alignment between owners and managers in German firms resulted in smaller boards and fewer outside members being appointed. On one hand, there may be endogenous effects at work here: For example, board structure and board process may both be driven by other factors, such as the family business goals features proposed by Voordeckers et al. (2007) and by Jaskiewicz and Klein (2007), and this studys inability to rule out such considerations represents an important limitation. On the other hand, however, it is possible that family firm decision makers have imperfect knowledge of the implications of board structure and that additional studies such as this one may help shed light on the merits of alternative choices.
Research Implications
Regarding the former, my findings broaden past work on corporate governance and also extend family business research by highlighting some previously underappreciated ways through which outside directors affect firm governance. For instance, more than 20 years ago, some authors (Ford, 1988; Jonovic, 1989) argued that outside members can obstruct the effectiveness of the family business board of directors because of a lack of knowledge of the firm and its environment, lack of access to the firm (Ford, 1988), as well as lack of authority and definable interest (Jonovic, 1989). Later on, a theoretical study on boards argued that a direct negative effect of outsiders on board cohesiveness exists based
Practical Implications
The data suggest that to increase their ability to govern, family businesses that actively use a board of directors should incorporate outside members. This should increase the level of board effort andinterestinglyboard cohesion. This last result on board cohesion shows that the assumption that the presence of outsiders on a board negatively affects cohesiveness (Forbes & Milliken, 1999) is not applicable to family businesses boards. In addition,
164 the benefits (in terms of effort and use of knowledge and skills) derived from the presence of outside board members increase as the company gets older. This result is in line with existent literature on boards (Boulton, 1978; Dyer, 1986, Judge & Zeithaml, 1992) and suggests that outside directors could play more crucial roles in older family firms that typically face a greater variety of issues and more complex problems. Acknowledgments
Limitations
This article suffers from some important limitations. Because of the difficulty in gathering board processes data from active family businesses boards, a nonprobabilistic sampling technique was adopted. Accordingly, the sample cannot be defined as representative and definitive conclusions cannot be drawn from this exploratory study. Therefore, I cannot extrapolate the results to all family firms; this is indeed an exploration of a unique database of family firms that use actively the board. Finally, a possible limitation of this research concerns the method of measuring family business boards processes by referring to a single respondent for each group. Even if reliability statistics were comforting, group-level analysis could have shed some additional light on the relationships between board structure and processes and different results might have emerged using other approaches. To overcome this limitation, future research should approach the subject by surveying a set of entire boards, which would increase the chances of comparing different approaches to this issue. As context might play a substantial role (Hayton, George, & Zahra, 2002), future research should analyze whether national culture and settings affect the relationship between board composition and processes. To conclude, considering family business governance, Sharma, Chrisman, and Chua (1997) assert that the issue of outside board members is much more complex than what the general statements convey and that the type of board formed will determine its role and functions (p. 11). After having shown some of the peculiarities of family business boards, I indicate and empirically show that in the Italian context, outside directors increase the level of effort each individual is expected to show inside the boardroom (i.e., board effort norms) and the degree to which board members are positively engaged with each other and motivated to stay on the board (i.e., board cohesion).
I wish to thank Shaker A. Zahra, Daniel Forbes, and John A. Davis for the useful and constructive comments that led to the improvement of the article. I also wish to thank the participants of the 2010 Theories of Family Enterprise (ToFE) conference and the European Council for Small Business collaborative research roundtable at RENT XXIII for their comments on previous versions of the article. I thank Ing. Stefano Scaglia, the INSEAD Alumni Association (Italian Branch), the Aidaf (Associazione Italiana delle aziende familiari), and ConfindustriaBergamo for their support during the data gathering phase.
Declaration of Conflicting Interests

The author declared no potential conflicts of interests with respect to the authorship and/or publication of this article.
Funding
The author received no financial support for the research and/ or authorship of this article.
Notes
1. Since some businesses have more than one board (e.g., a holding company board and boards of operating companies), I considered the main board to be the board of the company that has the power to take the most important decisions for the entire family business. This board position increased my confidence that the director was in a key decision-making positions for the company as a whole (Fidler, 1981; Stiles, 2001). 2. Company censuses (e.g., the AIDA database of Italian firms or the Italian Chambers of Commerce Register) contain names, economic indicators, ownership data, and other information about Italian companies. However, it is not possible to infer from these data which companies are controlled by a family or which have two or more family members who work in the company or who in some way have significant influence over the business. 3. In other words, this method helps locate members of special hard-to-find populations via referral by knowledgeable associates. 4. When the respondent was both the CEO and the chairman, I coded her or him as a CEO. Since role overlapping is very frequent in family businesses, I did not receive any responses for directors who exclusively held the chairman role. 5. The top management team was defined in my survey as all inside top-level executives including the chief executive officer, chief operating officer, business unit heads, and vice presidents (Finkelstein & Hambrick, 1996).
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Bio
Cristina Bettinelli, PhD, is a researcher at the University of Bergamo, Faculty Economics and Business Administration, Italy where she is a member of the research staff of the Entrepreneurial Laboratory (E-Lab) Research Center. Her primary areas of interest are entrepreneurship, boards of directors, corporate governance, and family business. She received her PhD from the University of Bergamo and did part of her graduate studies at Harvard University.

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com/ Business Review

Family Firm Institute

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University of Bergamo, Bergamo, Italy

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Hypotheses Outside Directors and Effort Norms

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Outside Directors and the Board Cohesiveness

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Outside Directors and the Use of Knowledge and Skills

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Moderating Effects of Family Business Age and Size

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Family Business Review 24(2)

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Discussion and Conclusion

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Family Business Review 24(2)

Declaration of Conflicting Interests

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Family Business Review 24(2)

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Family Business Review 24(2)

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