Professionalization of TMT in Private Family Firms - the Danger of Institutionalism Literature Review

Family members in a private family firm are often present in the management of the firm as well as the Board of directors, while they also may form the group of majority shareholders (Chua et al., 2009). This combination of tasks leads to unique organizational structures which may have an impact on Professionalization of the private family firm, defined here as the integration of non-family managers in the top management team (hereafter TMT) (Dyer, 1989, Zhang and Ma, 2009). Hiring non-family managers leads to the separation of ownership and control and thus increases Agency costs. Therefore, agency theory is frequently used within the research field of TMT Professionalization of private family firms (Ang et al., 2000, Chua et al., 2003, Gomez-Mejia et al., 2001). Firms evolve through stages in their organizational life cycle (Zahra and Filatotchev, 2004). Each stage implies increasing complexity and the resources that enabled a firm to grow will become Insufficient. Firms in this specific situation are called threshold firms. The greatest challenges for threshold firms are the increase of managerial activities and greater managerial division of labor. Hence, threshold firms are characterized as the evolution from a one-person, entrepreneurial style of Management to a functionally organized, professional top management team (Daily and Dalton, 1992, Hofer and Charan, 1984). Family firms are considered as having no or low agency costs given the combination of ownership and management (Jensen and Meckling, 1976, Fama and Jensen, 1983). The wellbeing of an individual in the family may be positively related to that of other family members, also referred to as altruism (Gomez-Mejia et al., 2001, Lubatkin et al., 2005, Schulze et al., 2003b). Coercive pressures are defined as the formal and informal pressures which are exerted on organizations by other organizations upon which they are dependent and by cultural expectations in the society (DiMaggio and Powell, 1983). Teo et al. (2003) argue that these pressures may stem from a variety of sources like for example suppliers, regulatory bodies or parent corporations While normative isomorphism puts more emphasis on adaptation of practices, mimetic isomorphism is rather linked with modeling or imitating actions of other organizations (Teo et al., 2003). An organization may model itself after other organizations to acquire legitimacy while it can also be an Action driven by uncertainty (DiMaggio and Powell, 1983).

This limitation occurs when the family firm focuses on values emphasizing the loyalty, commitment and contribution to the family, and respect for family-based authority and hierarchy (Zhang and Ma, 2009, p.129).

References
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Zahra, S. A. & Filatotchev, I. 2004. Governance of the Entrepreneurial Threshold Firm: A Knowledge-Based Perspective. Journal of Management Studies, 41, 885-897. Zhang, J. & Ma, H. 2009. Adoption of Professional Management In Chinese Family Business: A Multilevel Analysis Of Impetuses And Impediments. Asia Pacific Journal of Management, 26, 119-139.