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This study examines relationships between the existence of boards of directors and advisory boards and the use of planning in family businesses. It is argued that both of the
primary roles of boards, the governance of a firms management team for the firms stakeholders and the provision of valuable business resources to the firms management team,
are significantly related to the use of planning activities in family businesses. The empirical evidence, drawn from a survey of more than 130 family businesses, largely supports
the hypotheses. Conclusions and suggestions for future research close the article.
Research has established the importance of both
strategic planning and the formation of boards
for the success of family businesses (Sharma,
Chrisman, & Chua, 1996, 2003; Ward, 1988). Like
other forms of businesses, family-owned firms
that have clear perspectives on how their managers run their firms and that have proper and
effective governance structures are more likely to
enjoy long-term success. There are, of course,
alternatives to utilizing strategic planning and
boards. Instead of planning, managers may
choose to make decisions based on intuition or
simply continue on the trajectories set for the
business in years past. Boards may not be formed
or ignored once in place, and family businesses
may choose to rely only on informal interactions
with family members for the advice and aid provided by boards at other firms.
Scholars have explored both planning and
boards, to varying degrees, in family businesses,
but little or no research has been conducted on the
relationships between them. This lack of research
represents a significant gap in our understanding
of how family businesses grow and develop, especially in todays world of intense competition and
renewed interest in corporate governance. The
specific research question that guides this article
is: Is there a relationship between the existence of
FAMILY BUSINESS REVIEW, vol. XIX, no. 1, March 2006 Family Firm Institute, Inc.
65
Blumentritt
Advisory Boards
Within family businesses, a distinction must be
made between boards of directors and advisory
boards. A board of directors has legal standing
and voting rights as it formally represents shareholders in interactions with a firms management.
Studies of family business boards have largely
concentrated on boards of directors. However,
given that many family businesses are small
and/or developing, many do not have a formal
board of directors due either to a perceived lack
of need or simply because they have not made the
effort to construct one. Such firms may use less
formal advisory boards in their stead.
Blumentritt
Measures
Dependent variables. To examine planning
behaviors, the study included several fact-based
measures. Firms can use strategic planning with
different degrees of intensity. Although some
firms may utilize a simple strategy review process,
consisting of activities such as informal discussions and general analysis, others may utilize a
formal process for constructing strategy. The
alternative to either of these planning methodologies is to not engage in planning at all. Further,
either informal or formal planning processes can
be codified into a written strategic plan. Therefore, three items were used for the dependent variables, each using dichotomous responses (yes/no),
to examine the use of strategic planning: Does
your company go through a strategy review
process on a regular basis? Does your company
employ a formal process for constructing strategy? and Does your company have a written
strategic plan?
Again using a fact-based item, succession planning was measured by asking if a successor had
been identified (yes/no). Although this item does
not measure planning behavior, it does capture
68
variate normality required for most forms of multiple regression analysis. Four equations were
used to test the hypotheses. The first three equations examined the dependent variables associated with strategic planning behaviors; the fourth
equation tested the independent variables on the
incidence of an identified successor.
Coefficient estimates (any bi) in logistic regression are treated slightly differently than in linear
regression. Instead of indicating a slope, each bi
indicates an odds ratio. An odds ratio is the degree
to which the odds of experiencing the dependent
variable increase given an increase in Xi, the independent variable associated with bi. The odds
ratio is computed as exp(bi), or e raised to the
power of bi. (The constant e is the base of the
natural logarithm and equals approximately
2.718.) For example, each additional unit of an
independent variable with a bi of 0.50 would
increase the odds of experiencing the dependent
variable by 64.87%.
1.
2.
3.
4.
5.
6.
7.
8.
Board of directors
Advisory board
Written strategic plan
Strategy review
Formal process
Successor identified
CEO tenure
Employees
Mean
SD
0.29
0.22
0.42
0.51
0.37
0.41
18.4
4.1
0.46
0.41
0.50
0.50
0.49
0.49
11.9
1.55
0.01
0.32***
0.15
0.19*
0.07
0.14
0.40***
0.31***
0.23***
0.29***
0.25**
0.12
0.09
0.65***
0.67***
0.00
0.08
0.36***
0.58***
0.15
0.08
0.25**
0.06
0.06
0.34***
0.23**
0.06
0.02
* p < 0.05.
** p < 0.01.
*** p < 0.001.
69
Blumentritt
Equation
1
Strategy Review
Formal Process
Written Plan
Identified Successor
0.334
(0.563)
0.987*
(4.255)
0.001
(0.000)
0.012
(0.759)
5.789
0.045
0.610
(1.727)
1.389***
(7.805)
0.030
(0.119)
0.049**
(8.461)
20.701***
0.150
1.252**
(6.793)
1.538**
(8.820)
0.024
(0.072)
0.040*
(6.130)
23.288***
0.168
Dependent Variables
Board of directors
Advisory board
Number of employees
CEO tenure
Model c2
Cox & Snell R2
0.446
(0.748)
1.652**
(9.378)
0.596***
(21.814)
0.091***
(19.268)
41.857***
0.283
* p < 0.05.
** p < 0.01.
*** p < 0.001.
Conclusions
The data and analysis presented in this article
suggest that boards of directors and advisory
boards have different relationships with planning
in family businesses. Although the correlation
matrix indicates that there are positive and
significant relationships between aspects of
strategic planning and the existence of a board of
directors, those relationships are minimized after
controlling for CEO tenure and firm size. Alternatively, the data suggest strong relationships
between advisory boards and planning activities.
References
Corbetta, G., & Salvato, C. A. (2004). The board of directors in family firms: One size fits all? Family Business
Review, 17(2), 119134.
Corbetta, G., & Tomaselli, S. (1996). Boards of directors
in Italian family businesses. Family Business Review,
9(4), 403421.
Hillman, A. J., & Dalziel, T. (2003). Boards of directors
and firm performance: Integrating agency and
resource dependence perspectives. Academy of Management Review, 28(3), 383396.
71
Blumentritt
72
Sharma, P., Chrisman, J. J., & Chua, J. H. (2003). Succession planning as planned behavior: Some empirical
results. Family Business Review, 16(1), 115.
Sirmon, D. G., & Hitt, M. A. (2003). Managing resources:
Linking unique resources, management, and wealth
creation in family firms. Entrepreneurship: Theory
and Practice, 27(4), 339358
Steier, L. (2001). Family firms, plural forms of governance, and the evolving role of trust. Family Business
Review, 14(4), 353368.
Tillman, F. A. (1988). Commentary on legal liability:
Organizing the advisory council. Family Business
Review, 1(3), 287288.
Upton, N., Teal, E. J., & Felan, J. T. (2001). Strategic and
business planning practices of fast growing family
firms. Journal of Small Business Management, 39(1),
6072.
Ward, J. L. (1988). The active board with outside directors and the family firm. Family Business Review,
1(3), 223229.
Tim Blumentritt (Ph.D., University of South Carolina) is an Assistant Professor in the Department
of Management and Entrepreneurship at Kennesay
State University. His research interests include
strategic management and succession in family
businesses. He can be contacted at Kennesaw State
University, Coles College of Business, 1000 Chastain Rd., #0404, Kennesaw, GA 30144-3170;
Tim_blumentritt@kennesaw.edu.
The author thanks Kirby Rosplock for her
research assistance on this project.