Journal of Small Business Management 2001 39(1), pp.

1430
The Phenomenon of Substantive Conflict in
the Family Firm: A Cross-Generational Study*
by Peter S. Davis and Paula D. Harveston
This study investigates the influence that family members exert on the extent and
frequency of substantive conflict within family firms across generations as a result of
their familial relationship (distance) with the owner/manager of the firm and the
positions these family members occupy inthe family work group andsocial (non-work)
group. Following Beckhard and Dyer (1983), the construct of substantive conflict was
vested in four key issues pertinent to family firms: (1) ownership continuity or change;
(2) executive leadership continuity or change; (3) power and asset distribution; and
(4) managements vision for the role of the firm in society. The results establish a
relationship between conflict in a family business and the composition of the familys
work group, non-work (social) group, and the extensiveness of the familys social
interactions. The relationships between conflict and family influence were found to be
moderated by the generations (first, second, third, or later) among involved family
businesses.
. . . conflict, not harmony, binds us
together . . . There is no realistic al-
ternative to managing conflict.
Learning to manage conflict is po-
tentially a common goal that people
everywhere can share.
Dean Tjosvold (1996, p. 1203)
As Tjosvolds quote affirms, conflict is
an integral part of any organization. Man-
agers have been found to devote more
than 20 percent of their time to managing
conflict, which they rate as equal in impor-
tance to their other managerial activities
(Thomas and Schmidt 1976). Because of
its importance, considerable efforts have
been undertaken across a variety of disci-
plines (such as psychology, anthropology,
and political science) to understand, pre-
dict, and control conflict. Unfortunately,
these efforts have tended to remain rooted
in their separate specialties, where conflict
Dr. Davis is professor of management at the Fogelman College of Business and Economics at
the University of Memphis in Memphis, Tennessee. His research on entrepreneurial and family
firms investigates strategy, information technology, and globalization, as well as family conflict,
succession, and governance issues.
Dr. Harveston is assistant professor of management at the Campbell School of Business at Berry
College in Rome, Georgia. Her research is focused on family business, new venture issues, and
knowledge management.
*The authors wish to express their appreciation to the Massachusetts Mutual Insurance
Company for their contributions to this research. A previous version of this paper was presented
at the 1997 Academy of Management Meeting, Boston, Mass.
14 JOURNAL OF SMALL BUSINESS MANAGEMENT
is often analyzed out of its context. Conse-
quently, while researchers often study con-
flict among individuals andingroups, such
studies are often done without much refer-
ence to the particulars of the involved social
and business context (Tjosvold 1996).
Perhaps in no context is the manage-
ment of conflict more critical or less under-
stood than in the family firm (Beckhard
and Dyer 1983). While anecdotal evidence
abounds, relatively few empirical studies
have been conducted on the antecedents
and correlates of conflict within family
firms. Given the prevalence of family firms
in the economic fabric of U.S. society, the
absence of studies about conflict in family
businesses is surprising. The conse-
quences of conflict can be high, resulting
in behaviors destructive to both the firm
and the family. Indeed, it has been said that
conflict within the family frustrates ade-
quate planning and rational decision mak-
ing (Levinson 1971, p. 96). Beckhard and
Dyer (1983) suggest that the failure to
adequately control conflict may contribute
to the high mortality rate of family-owned
firms. A mere 30 percent of family busi-
nesses are said to survive past the first
generation (Beckhard and Dyer 1983;
Dyer 1986), with only 10 to 15 percent
surviving to a third generation (Applegate
1994).
The current study examines the influ-
ence that the family exerts on conflict and
the pervasiveness of conflict across genera-
tions. The perspective adopted was that of
the family business leader (owner/man-
ager). The study focused on the two di-
mensi ons that are most frequently
articulated when conceptualizing per-
ceived conflict: the extent or intensity of
the issues and the frequency of disagree-
ments (Eliashberg and Michie 1984). Fol-
lowing Beckhard and Dyer (1983), the
construct of substantive or task-oriented
conflict was viewed as vested in four key
issues in family firms: (1) ownership con-
tinuity or change; (2) executive leadership
continuity or change; (3) power and asset
distribution; and (4) managements vision
of the firms role in society.
We begin by reviewing the relevant lit-
erature to provide the necessary back-
ground and to state the main research
hypotheses. We then describe the data and
method used to investigate the hypothe-
sized relationships, and discuss measure-
ment issues. Finally, we report the results
of the empirical study, discuss their impli-
cations, and provide suggestions for fur-
ther research.
Conceptual Background
Family Businesses
Family businesses are unique institu-
tions in the socioeconomic environment
of the United States. Family businesses,
whether large or small, are characterized
by having the founder or a family member
as president or chief executive officer,
members of the founders family em-
ployed by the company, and managers de-
fining their firm as a family business
(Holland and Boulton 1984). Those who
play down the impact of family firms may
not be aware that family businesses com-
prise an estimated 80 percent of the 15
million businesses in the U.S. (Carsrud
1994) and represent more than 50 percent
of Americas GDP (McCann, Leon-Guer-
rero, and Haley 1997). Despite their im-
portance in the American economy, family
businesses have a complex set of problems
not completely addressed by classical man-
agement theory (Davis and Stern 1980).
One such problem is the effect of conflict
in the family.
Conflict
When examining intraorganizational
conflict, a central issue is determining the
foci of conflict. Conflict theorists (such as
Guetzkow and Gyr 1954; Ross 1989; Wall
and Nolan 1986) typically describe con-
flict as either substantive, consisting of
task disagreements, or affective, consist-
ing of emotionally-charged interper-
sonal clashes characterized by anger,
DAVIS AND HARVESTON 15
distrust, frustration, and other forms of
negative affect. Because our focus is on the
investigation of conflict concerning the
business, the model developed here fo-
cuses on substantive conflict which
Guetzkow and Gyr (1954, p. 380) describe
as intellectual opposition among partici-
pants, deriving from the content of the
agenda. That is, substantive conflict arises
from disagreements about task issues in-
cluding the nature and importance of task
goals and such key decisions as proce-
dures for task accomplishment, and the
appropriate choice for action (Pelled
1996). As used here, the existence of sub-
stanti ve conf l i ct i s def i ned as the
owner/managers perception that there
are disagreements about task issues in-
cluding the nature and importance of
goals and decision areas.
Beckhard and Dyer (1983) have sug-
gested that the key substantive issues that
leaders of family business should address
are ownership and executive leadership
continuity or change, power and asset dis-
tribution, and the role of the firm in soci-
ety. Luce andRaiffa (1957, p. 1) characterize
substantive or issue-based conflict as situ-
ations in which an individual is in a situ-
ation from which one of several possible
outcomes will result and with respect to
which he has certain personal preferences.
However, though he may have some con-
trol over the variables that determine the
outcome, he does not have full control.
Sometimes it is in the hands of several
individuals who, like him, have prefer-
ences among the possible outcomes, but
who in general do not agree in their pref-
erences. Family business owner/manag-
ers may disagree with other family
members on substantive issues. As Beck-
hard and Dyer (1983, p. 59) note, Family
members often differ from the founder . . .
and conflict frequently results. For exam-
ple, while founders usually want to con-
tinue family ownership, this may not be
true of their immediate family or later-gen-
eration family members. It is this concept
of preference incongruity among individ-
ual family members which provides the
theoretical basis for this study.
Much of the research on conflict has
relied on the work of Pondy (1967) and on
Thomas and Schmidts (1976) process
model, which conceptualizes conflict as an
individual-level perceptual construct. Of
course, the focus here on perceived con-
flict should not be taken to imply that
conflict does not objectively exist, only
that disputants experience is their reality
and thus determines the nature of the
conflict for them (Klar, Bar-Tal, and
Kruglanski 1987). In the framework pre-
sented here, we draw upon cognitive psy-
chology to argue that ones perceptions of
people and their preferences on various
issues is a theoretically valid concept
whenever the perceiver has had meaning-
ful experiences with the other party per-
taining to these issues (Schneider, Hastorf,
and Ellsworth 1979) and the perceptual
task is consistent with the perceivers nor-
mal information processing capabilities
(Newell and Simon 1972). Such would
certainly seem to be the case with both the
participants and the issues addressed
here.
Family-Level Factors
The literature suggests that family mem-
bers exert a differential impact on decision
processes in family businesses (Dyer 1986;
Astrachan 1988). One obvious reason why
family members views may diverge is dif-
ferences in familial distance. For example,
in-laws views may differ from those of
blood relatives. In addition, organizational
researchers (such as Gouldner 1954; Blau
1954) have long maintained a distinction
between instrumental ties (those arising
in the course of fulfilling work roles) and
primary ties (those informal social rela-
tionships that have been shown to both
enhance and impede organizational pro-
cesses and the attainment of organiza-
tional goals). While some family members
remove themselves frommanagement and
become absentee owners, others prefer to
be actively involved in managing the firm
16 JOURNAL OF SMALL BUSINESS MANAGEMENT
(Beckhard and Dyer 1983). Family mem-
bers who are working in the firm may see
things differently from those family mem-
bers who are not active in the businesss
day-to-day operations (Ward and Aronoff
1994). These differing attributesfamilial
distance and the nature of the ties that
bind the family together, including instru-
mental ties (work relationships) and pri-
mary ties (the familys social relation-
ships)suggest that certain family mem-
bers may play a more central role than
others in family business conflicts.
Family Work Group Composition. In
the family business setting, owners who
employ other family members have been
found to experience significantly higher
levels of work-family conflict (Boles 1996).
Despite the higher levels of business-fam-
ily conflict experienced by owners of busi-
nesses with family participation, Rogoff
and Lee (1996) concludedthat this conflict
is generally well managed and does not
interfere with the achievement of business
objectives. Although increasing the in-
volvement of family members may be
viewed positively by business owners,
there is little research which explicitly
takes into account the effect that familial
distance and increased participation in the
familys work and social groups has on
conflict at work.
As noted above, some family members
may be actively involved in the manage-
ment of the firm while others are not. In
the former case, selected family members
(often those most closely related to the
owner/manager) may comprise members
of the firms upper echelon (Bluedorn et
al. 1994) whose participation in joint deci-
sions becomes a foci for conflict reduction
and resolution. Prior studies on family
work groups imply that the closer the
relationship of the family member to the
owner/manager, and the higher the
members position or level of responsi-
bility/authority, the more influence the
member has on the decision processes of
the family business (Davis and Tagiuri
1989). Due to the possible combined
effect of higher levels of both family
affiliation and organizational roles, the
composition of the family work group
may exert a strong influence on the ex-
tent and frequency of conflict in a family
business.
Substantive conflict can arise due to
internal group processes involving task-re-
lated interactions, such as defining goals
and developing plans of action. There is a
long history of case studies of family busi-
nesses that suggest that because family
dynamics are often acted out in organiza-
tions, the presence of added family mem-
bers in these organizations seems only to
intensify the eruption of conflict (for ex-
ample, see Levinson 1971). One explana-
tion for these findings of increased conflict
may be that previous studies approached
conflict in the family business from a more
affective perspective (see Jehn 1997 for a
review). Our view is different.
We propose that the control and coor-
dination functions assigned to closely re-
lated family members who occupy top
management roles require the mainte-
nance of direct and efficient communica-
tions channels among them. Group
members can communicate about task is-
sues by expressing agreement or exchang-
i ng i nf ormati on t hat support s a
perspective they share. Because they face
similar organizational circumstances, fam-
ily members working in the organization
are likely to develop common interests
and perspectives leading to greater con-
sensus on the issues facing the organiza-
tion. It therefore seems reasonable to
expect that the more homogeneous the
family work group (such as consisting of
family members with higher levels of fam-
ily affiliation and higher organizational
roles), the lower the organizational con-
flict. Thus, our first hypothesis is:
H
1
:The more family members who work
in the family business and the higher
their levels of family affiliation and
organizational roles, the lower con-
flict will be in the organization.
DAVIS AND HARVESTON 17
Family Non-work Group Composition.
The owner/manager, like many members
of his/her firms upper echelon, is a
member of overlapping subgroups. Be-
cause they are identified with both work
and family groups, owner/managers may
become the object (and initiators) of at-
tempts to exert influence by members of
these various subgroups to represent and
reconcile the firms and familys interests.
Many scholars (for instance Boles 1996)
suggest that when more family members
are involved the family business, conflict is
higher; however, these studies fail to ac-
count for differences among family mem-
bers based on their membership in work
or non-work groups. While not occupying
organizational positions of decision-mak-
ing responsibility and authority, members
of the family social group may still influ-
ence conflict via kinship responsibility
(Price and Mueller 1981). Kinship respon-
sibility is based on the premise that it is
easier to be involved with relatives who
work at the same organization and live in
the same community than with those who
do not (Iverson and Roy 1994). Allowing
members of the family social group to ex-
ercise influence over organizational pro-
cesses is desirable as a means to maintain
the kinship network.
Family members in the business and
those outside the business may have com-
peting needs and goals which can translate
into conflict (Dyer 1994). While interper-
sonal frictions may lead family members
outside the business (sleeping partners)
to sometimes dive for each others throats,
they often function as a valuable sounding
boards for ideas and help keep the overall
vision of the company alive (Davies 1998,
p. 113). In these cases, efforts are exerted
to cope with the conflict and resistance
that accompany management of the family
firm and thereby minimize their potential
negative effects on family cohesion. In
other words, family members who are not
active in day-to-day management may seek
to play the role of peacemakers. Thus, our
second hypothesis is:
H
2
:The greater the number of family mem-
bers with close family affiliation who
do not work in day-to-day operations
but who still exercise influence in the
family business, the lower conflict will
be in the organization.
Family Social Interaction. Social con-
structivist theories generally presume that
social and symbolic processes produce
patterns of shared cognition (under-
standing) among members of the same
social group(for instance, see Salancik and
Pfeffer 1978; Bandura 1986; Fulk, Schmitz,
and Steinfield1990). To the extent that this
is true, closely-knit networks, such as fami-
lies, are key sources of social learning
(Bandura 1986). Generally, it is believed
that one benefit of social interactions
among group members can be shared
learning (understanding, consensus) that
may reduce conflict among group mem-
bers (St. John and Rue 1991). Social inter-
actions among family members who are in
some way involved in the business,
should lead them to experience closeness
and reduced levels of conflict. Since fami-
lies usually seek to avoid conflict at all
costs (Ward and Aronoff, 1994, p. 55), the
drive for family members to maintain ties
of kinship and get along well with each
other should mean that social interaction
will reduce the overall level of substantive
conflict present in family businesses.
While a considerable body of evidence
has been accumulated to support the
power of social influence to produce con-
vergence of interpretation, attitudes, and
meanings between an individual and a
group, some evidence suggests that the
effects of social interaction on conflict may
not be so salubrious. For example, com-
munications within the social group can
increase the saliency of issues simply by
calling attention to them (Salancik and
Pfeffer 1978). Unfortunately, the poten-
tially important role of family social inter-
action on business conflict remains
unresolved. Consistent with extant evi-
dence, we offer our third hypothesis:
18 JOURNAL OF SMALL BUSINESS MANAGEMENT
H
3
:The more family members interact
through family social interaction,
the lower conflict will be in the
organization.
Generation Effects. This study also in-
vestigated generation effects (here used as
a moderating influence) in order to better
depict stages that may underlie the basic
structure of conflict in family businesses.
Following Leach (1990), first-generation
family firms should be less family-oriented
than later generation firms. This effect is
anticipated because of the importance of
the founder as the most powerful influ-
ence on organizational culture (Bennis
1986). As Schein (1985) contends, during
the birth and early growth of organiza-
tions, the founder dominates the organiza-
tion and holds the organization together
by emphasizing socialization and develop-
ing commitment, while organizational
midlife is characterized by the spawning of
subcultures and the loss of key goals, val-
ues, and assumptions. Thus, to the extent
that family orientation equates to family
influence, family subgroups should play
an increasing role in determining conflict
in the firm as generational control pro-
gresses from first to second and from sec-
ond to third or later. Hence, we offer the
fourth hypothesis of this study:
H
4
:The relationship between family-level
factors and organizational conflict
will be moderated by the generation of
the firms leadership.
It should be made clear that this re-
search did not extend to addressing ques-
tions about the effects of conflict on
individual, family, or organizational wel-
fare. While high levels of conflict are gen-
erally regarded as dysfunctional, their
detrimental effects on group functioning
and organizational performance have
been suggested to be mostly due to con-
flicts that are affective in nature, involving
relationship and process issues (Zedeck
1992). Recent research in other contexts
suggests that moderate levels of task (sub-
stantive) conflict may be constructive,
stimulating groups to perform better
(Kaye and McCarthy 1996; Jehn 1997).
However, questions about the effects of
conflict become especially clouded in the
context of family firms, where the overlap-
ping domains of family and business may
result in conflict reflecting a combination
of task, relationship, and process issues.
Clearly, disentangling this complex mix of
processes would require other hypotheses
beyond those investigated here and would
utilize different independent and depend-
ent variables at the individual, family, and
organizational levels. However, as these
encompass issues beyond the scope of the
current investigation, they must be left for
future research to resolve.
Methodology
Sample
The data used to test the hypotheses
were collected as part of a national tele-
phone survey conducted in 1994 by the
Gallup Company for Massachusetts Mu-
tual Insurance Company to investigate the
operations of U.S. family-owned busi-
nesses. Using a survey is consistent with
the majority of studies on conflict. The
total sample included responses from
1,002 family-owned firms competing in
most major U.S. industries and was com-
piled from a comprehensive database of
family-owned businesses maintained by
Dun and Bradstreet and Survey Sampling.
To be included in the survey, firms had to
meet the following criteria: the company
had at least ten employees, annual reve-
nues of at least two million dollars, and
had been founded at least ten years prior
to the survey. Respondents were required
to be the primary owners of the busi-
ness, as identified by the title they held
(that is, owner, president, or CEO) and
had to identify their business as a fam-
ily business.
DAVIS AND HARVESTON 19
Dependent Variables: Extent and
Frequency of Conflict
Consistent with the conceptualization
of conflict as an individual-level subjective
phenomenon consisting of the intensity
(extent) and the frequency of disagree-
ments about issues (Eliashberg and Michie
1984), two dependent variablesextent
of conflict (SUMCON) and frequency of con-
flict (FREQCON)werecreated. These vari-
ables were defined on the basis of the
owner/managers responses to a series of
questions in the survey.
Consistent with Beckhard and Dyers
(1983) recommendations concerning is-
sue-based (substantive) conflict in the or-
ganization, respondents were asked to
evaluate the extent to which conflict over
(1) ownership or control of the company;
(2) management roles in the company; (3)
money or other compensation; and (4)
long-term company vision have been
either a major problem, a minor problem,
or not a problem(responses were scored as
3, 2, or 1, respectively) for their business.
Responses to the four questions assess-
ing the extent of conflict were summed to
create a single scale (SUMCON) ranging
from 4 (indicating low substantive con-
flict) to 12 (indicating high substantive
conflict). The unidimensionality of the
SUMCON scale was tested using principal
components factor analysis that was re-
peated across all three generational sub-
groups. The results indicated a single
latent factor with eigenvalues greater than
one, accounting for 55, 66, and 67 percent
of the variationinthe four items inthe first,
second, and third or later generations, re-
spectively, and for 61 percent of the vari-
ation in the total sample. The Cronbach
alpha reliability coefficient of the resultant
multiple-itemSUMCONscale was .77, con-
firming the scales reliability (Nunnally
1967).
The frequency of conflict (FREQCON)
was measured by asking respondents a
single question: Howoften would you say
conflicts among family members regarding
the business occur? Response options
ranged from1 (almost never) to 5 (very
frequently).
Independent Variables
Family Influence. To measure the influ-
ence of family members active in day-to-
day operations, respondents were asked
to name up to four family members who
worked in day-to-day operations. Only 110
respondents (11 percent) named as many
as four family members. The role or posi-
tion held in the organization and the rela-
tionship to the owner/manager was then
ascertained for each family member iden-
tified by the respondent. Those individuals
with a close family relationship to the
owner/manager (whether spouse, mother,
father, son, or daughter) were coded 2.
All other individuals (including grandpar-
ents, aunts, uncles, cousins, and in-laws)
were coded 1. Similarly, individuals
holding positions in the organizations up-
per echelonthose deemed more likely to
be involved in making decisions (such as
president or vice president)were coded
2, while all other positions (for example,
secretary, mechanic, waitress, custodian)
were coded 1. The two scores for role
and position were multiplied to create a
single scalar variable whose value ranged
from 1 to 4. These scores for each
identified family member (limited to four
per firm) were summed to yield a variable
(FAMINOP) for each firm that ranged from
4 to 16.
A similar process was followed to create
the variable FAMOUT, except that the re-
spondent was asked to identify up to four
family members who did not work in day-
to-day operations but who had influence
on business decisions. Less than one per-
cent of respondents named as many as
four family members. The resultant scale
(FAMOUT) had psychometric properties
similar to those for FAMINOP.
A third variable representing social in-
teraction (SOCINTER) was formed by re-
sponses to the question How would you
describe the social interaction among
family members who are involved in the
20 JOURNAL OF SMALL BUSINESS MANAGEMENT
business? Responses were scored using a
four-point scale ranging from1 =not close
at all to 4 = very close.
Control Variables
To provide the strongest test of the extent
to which conflict is vested in the familys
social and business relationships, it was es-
sential to control for other variables
knownor suspectedtoco-varywithconflict.
Although the control variables provided
here are not part of the conceptual frame-
work, their inclusion clarifies the results.
As Keppel and Zedeck (1989, p. 456) note,
Even if there is a slight possibility that a
hypothesized covariate will have an effect
on the dependent variable, controlling for
it will result in a more sensitive test of the
treatment condition.
We included controls for individual-
level effects based on the attributes of the
individual owner, organizational-level ef-
fects attributable to size differences, and
resource-level effects such as access to re-
sources by including themas independent
variables in multiple regression equations
as follows. At the individual level, we fo-
cused on factors that recognize certain
physiologic and demographic charac-
teristics of the owner/manager, such as
age, education, and financial dependency
(including both income and wealth). Age
(AGE) was computed using the respon-
dent s sel f-reported date of birth.
Owner/manager education (EDUCATE)
was rated using a six-point scale ranging
from 1 (less than high school graduate)
to 6 (post graduate degree). The
owner/managers current annual income
(INCOME) was rated using a four-point
scale ranging from 1 (less than $50,000)
to 4 ($250,000 and above). The percent-
age of the owners wealth invested in the
business (WRTHPCT) was derived by ask-
ing respondents, What percentage of
your familys net worth is tied up in the
business? Answers were rated using a
four-point scale ranging from 1 (under
25 percent) to 4 (75 percent or more).
The natural log of total employees
(LSIZE) was used to control for differences
in size among sample firms. Differences in
resource availability were controlled for
via the owners perception of the business
current access to capital (CAPACC) as poor,
fair, good, or excellent (scaledas 1 to 4,
respectively). The owners rating of the
importance of bank funds (BANKFUND)
and family funds (FAMFUND) as sources of
capital were each assessed using four-
point scales ranging from 1 (not impor-
tant) to 4 (most important).
Moderating Variable: Generation
The majority of the respondents (649,
or 64.8 percent) indicated that their firms
were first generation, with the current
owner/manager being the founder. An-
other 168 firms (16.8 percent) were sec-
ond generation, the parents of the current
owner/manager having founded the busi-
ness. The remaining 185 firms (18.5 per-
cent) were third generation or more,
havi ng been f ounded by t he cur-
rent/owner managers grandparents or a
previous generation.
Correlations among Descriptive
Statistics
Descriptive statistics and correlations
for all involved variables for the total sam-
ple are shown in Table 1. As can be seen in
Table 1, relatively few significant correla-
tions among the independent variables
were revealed. For instance, the highest
correlation observed among the variables
was betweenthe owner/managers income
(INCOME) and the size of the firm (LSIZE)
r = .54; p < .001). None of the individual
correlations approached the order of mag-
nitude sufficient to suggest that intercorre-
lations among the variables pose any
problems for analysis or interpretation of
results. Not revealed in Table 1 are in-
creases observed across the first, second,
and third (or later) generations in the
means for the two conflict variables: SUM-
CON (from 4.83 to 5.08 to 5.68), and
DAVIS AND HARVESTON 21
Table 1
Correlations among the Descriptive Statistics
Variable Mean 1 2 3 4 5 6 7 8 9 10 11 12 13
1. FREQCON 2.37 1.14
2. SUMCON 5.03 .42*** 1.57
3. FAMINOP 4.82 .17*** .07** 3.82
4. FAMOUT 1.16 .02 .03 .09*** 2.52
5. SOCINTER 1.54 .02 .16*** .09** .02 .89
6. AGE 50.80 .19*** .17*** .04 .06* .04 11.96
7. EDUCATE 3.80 .01 .13*** .05* .15*** .03 .05 1.50
8. INCOME 2.27 .12*** .07* .03 .08** .04 .20*** .30*** 1.00
9. WRTHPCT 2.58 .05 .12*** .09*** .06* .05 .04 .01 .04 1.05
10. LSIZE 2.86 .01 .05 .24*** .12*** .07** .05 .32*** .54*** .24*** 1.40
11. CAPACC 2.92 .06* .11*** .12*** .02 .02 .00 .11*** .35*** .01 .29*** 1.02
12. BANKFUND 2.47 .10** .12*** .06** .06* .01 .11*** .09*** .09*** .15*** .27*** .10*** 1.09
13. FAMFUND 2.04 .11** .04 .01 .01 .10*** .03 .05 .10
***
.03 .14*** .09*** .05 1.05
Standard deviations are shown in the diagonals. FAMINOP = influential family members at work; FAMOUT = influential family
members not at work; SOCINTER = social interaction among family members; AGE = respondents age; EDUCATE = respondents
education; INCOME = respondents annual income; WRTHPCT = percent of respondents wealth invested in the business; LSIZE
= natural log of total employees; CAPACC = access to capital; BANKFUND = importance of bank funds as a source of capital; and
FAMFUND = importance of family funds as a source of capital.
*p < .10
**p < .05
***p < .01
2
2
J
O
U
R
N
A
L
O
F
S
M
A
L
L
B
U
S
I
N
E
S
S
M
A
N
A
G
E
M
E
N
T
FREQCON (from 2.29 to 2.36 to 2.61),
respectively. Post-hoc Sheff tests showed
SUMCON to be significantly higher
(p < .05) in the third generation than in
the first or second generation, while
FREQCON was significantly higher
(p < .05) among third generation firms
than among first generation ones.
Results
We began by sorting the total sample
into an ascending order by generation,
beginning with the first and ending with
third and later. Following Arnold (1982)
and Kohli (1989), we then conducted a
series of multiple regression analyses
within each subgroup, by which each of
the two dependent variablesthe amount
of overall conflict (SUMCON) and the fre-
quency of conflict (FREQCON)was re-
gressed on two blocks of independent
variables. One block included variables
capturing the influence of those family
members involved in day-to-day opera-
tions (FAMINOPS), those not involved in
day-to-day operations (FAMOUT), and the
extent of social interaction among family
members (SOCINTER). Another block
consisted of previously identified control
variables. Tables 2 and 3 show the moderat-
ing effects of the three generational sub-
groups on family-conflict linkages, with and
without the individual-, organizational-, and
the resource-level control variables.
In general, the results reveal a relation-
ship between conflict in a family business
and the composition of the familys work
group, non-work group, and the exten-
siveness of the familys social interaction.
The finding that relationships between
conflict and family influence differed ac-
cording to the generation of the family
business supports the presence of a mod-
erating influence from generation. Impor-
tantly, the findings remained robust even
in the presence of multiple control vari-
ables at the individual-, organizational-,
and resource-levels.
The Familys Role in Conflict
The results provide no support for Hy-
pothesis 1, which suggested that conflict
would be reduced by a greater number of
closely affiliated family members occupy-
ing high organizational roles in the family
business. As shown in Tables 1 and 2, in-
stead of decreasing conflict, the effect of
increasing FAMINOP was to significantly
increase the frequency of conflict across all
three generational subgroups. In terms of
the extent of conflict, although the signs
were positive, the effect of FAMINOP was
not significant.
In support of Hypothesis 2, the influ-
ence exerted by the non-involved group
(FAMOUT) was observed to significantly
reduce both the extent (p < .10) and fre-
quency (p < .05) of conflict among the
third or later generation firms. However,
this salubrious effect was not observed
among either first or second-generation
firms. Rather, the effect of FAMOUT in
first generation firms was to significantly
increase the extent of conflict. In light of
these significant bi-directional effects,
only partial support was obtained for
Hypothesis 2.
The results provided evidence con-
trary to Hypothesis 3, which argued that
greater social interaction among a fam-
ilys members would reduce conflict. As
shown in Table 1, the effect of increasing
social interaction (SOCINTER) was to
significantly increase the extent of con-
flict across all generational subgroups.
When the frequency of conflict was the
dependent variable, the effect of SOCIN-
TER was to significantly increase conflict
but only among third and later genera-
tion firms, as is shown in Table 2. In the
first and second-generation firms, the ef-
fect of SOCINTER on the frequency of
conflict was not significant.
The fourth hypothesis, that generation
would moderate the relationship between
family and organizational conflict, re-
ceived partial support. Here, it was found
DAVIS AND HARVESTON 23
that the influence of family members not
i nvol ved i n day- to- day operat i ons
(FAMOUT) on the extent of conflict were
positive and significant in the first genera-
tion but negative and significant in the
third or later generation firms. No other
significant reversals of sign were observed
across generational subgroups oneither of
the two independent variables.
Discussion and
Conclusions
The model developed here advances
our understanding of conflict in family
businesses in several ways. First, we ap-
proached conflict from the perspective of
the family business owner/manager, who,
as the peak coordinator (Mintzberg
Table 2
Subgroup Hierarchical Regression Results for Extent
of Conflict
Generation of Family Business
Variables First Second Third and Later
Independent variables
FAMINOP .09 .09* .09 .09 .04 .04
FAMOUT .09** .07 .01 .08 .11 .15*
SOCINTER .13*** .11** .13 .18* .30*** .32***
Control Variables
AGE .11** .02 .22**
EDUCATE .14*** .08 .17**
INCOME .01 .25** .01
WRTHPCT .04 .29*** .07
LSIZE .08 .06 .02
CAPACC .22*** .07 .08
FAMFUND .02 .13 .11
BANKFUND .01 .14* .09
F-Value 4.01*** 4.92*** .99 3.41*** 5.24*** 3.15***
Adjusted R
2
.02 .09 .00 .17 .08 .14
n 457 457 134 134 143 143
FAMINOP = influential family members at work; FAMOUT = influential family mem-
bers not at work; SOCINTER = social interaction among family members; AGE = re-
spondents age; EDUCATE = respondents education; INCOME = respondents
annual income; WRTHPCT = % of respondents wealth invested in the business;
LSIZE = natural log of total employees; CAPACC = access to capital; BANKFUND =
importance of bank funds as a source of capital; and FAMFUND = importance of fam-
ily funds as a source of capital.
*p < .10
**p < .05
***p < .01
24 JOURNAL OF SMALL BUSINESS MANAGEMENT
1979), occupies a central position from
which to assess conflict occurring at the
nexus of two important social net-
worksfamily and business (Carroll and
Teo 1996). Second, as suggested by Eliash-
berg and Michie (1984), we focused on the
two dimensions that are most frequently
articulated when conceptualizing per-
ceived conflict: the extent or range of is-
sues involved and the frequency with
which disagreements occur. Following
Beckhard and Dyer (1983), we assessed
the extent of conflict based on four key
issues they identified as central in family
firms: ownership continuity or change;
executive leadership continuity or change;
power and asset (money) distribution; and
managements vision for the firm. Finally,
by elaborating on the moderating role of
generation, the model was able to identify
Table 3
Subgroup Hierarchical Regression Results for Frequency
of Conflict
Generation of Family Business
Variables First Second Third and Later
Independent variables
FAMOUT .02 .00 .12 .09 .19** .20**
FAMINOP .13*** .11** .29*** .31*** .14* .11
SOCINTER .02 .02 .02 .01 .25*** .25***
Control variables
AGE .14*** .11 .24***
EDUCATE .071 .00 .02
INCOME .060 .05* .02
WRTHPCT .00 .05 .04
LSIZE .09 .13 .05
CAPACC .10** .08 .04
FAMFUND .08* .00 .17**
BANKFUND .08* .01 .01
F-Value 2.37** 3.11*** 4.46*** 2.03** 6.19*** 3.69***
Adjusted R
2
.01 .05 .07 .08 .10 .17
n 457 457 135 135 144 144
FAMINOP = influential family members at work; FAMOUT = influential family mem-
bers not at work; SOCINTER = social interaction among family members; AGE = re-
spondents age; EDUCATE = respondents education; INCOME = respondents
annual income; WRTHPCT = % of respondents wealth invested in the business;
LSIZE = natural log of total employees; CAPACC = access to capital; BANKFUND =
importance of bank funds as a source of capital; FAMFUND = importance of family
funds as a source of capital.
*p < .10
**p < .05
***p < .01
DAVIS AND HARVESTON 25
both similarities and differences in the
sources of conflict as they relate to conflict
across generations.
The empirical analyses support a link
between family and conflict in family busi-
nesses. However, caution should be exer-
cised in interpreting the results. As
mentioned earlier, only the influence at-
tributed to family members not actively
employed in the business (FAMOUT) was
found to reduce conflict and only among
third or later generation firms. It would
appear that involving family members be-
yond those working in day-to-day opera-
tions is one way latter-generation family
business owner/managers can reduce both
the frequency and the extent of conflict
in their organizations. Perhaps, as pre-
viously argued, even though they do not
occupy positions of formal decision-
making responsibility and authority
within the family firm, members of the
family social group are able to influence
conflict via kinship responsibility. The
exercise of kinship responsibility allows
these family members to cope with con-
flicts and resistance that accompany man-
agement of the family firm, and thereby
minimize their potential negative effects
on family cohesion. In other words, fam-
ily members who are not active in day-to-
day management may play an important
role as peacemakers.
On the other hand, the positive and
significant coefficient for FAMOUT among
first generation firms suggests that in the
presence of the businesss founder, in-
volvement by family members outside the
day-to-day operating context of the firm
may give rise to more extensive, although
not more frequent, conflict. Perhaps this
increase in conflict is to some extent due
to legitimacy barriers towards family inter-
ventions posed by the presence of the
founder; or perhaps the on-going pres-
ence of the founder lends a certain inertia
to organizational arrangements that is dif-
ficult for family members to overcome.
The finding that increasing the number
of close family relations in the firms day-
to-day operations (FAMINOP) increases
the frequency of conflict confirms conven-
tional wisdom. Apparently, the familys in-
volvement in the firms day-to-day
operations also increases the likelihood that
one or more family/managerial dyads will
disagree over the firms goals or actions. The
findings suggest that even though family
members may work in the same business
andshare a commoninterest incooperating
and coordinating their efforts, substantive
(task) conflicts may still arise.
The finding that increasing the social
interaction (SOCINTER) among family
members increases the extent of conflict
was somewhat surprising. This finding in-
dicates that families social integration af-
fects substantive conflict over task issues.
The inference is that when family business
owner/managers are active social partici-
pants in their families, interacting with a
wide range of family members beyond the
work setting, conflicts arise or at least be-
come more discernable. Increasing social
interaction may reflect an orientation by
the owner/manager toward establishing
and maintaining peer (family) relations
rather than toward relying solely upon
work relations. Perversely, increased social
interaction may increase conflict because
maintaining family relationships by social
exchange and mutual influence requires a
certain amount of benefit exchange (Hol-
lander 1978). The owner/manager pro-
vides a benefit by directing the familys
firm toward desirable results (for instance
employment for certain family members,
profit). In return, the family accords the
owner/manager status, influence, and
prestige. However, family members may
regard the owner/managers demands on
the family social infrastructure as exces-
sive. For example, family members who
are not employed by the business may
resist complying with the demands on
their time and energy required to achieve
family (group) consensus on organiza-
tional goals. This resistancemaybemisinter-
preted by the owner/manager as substantive
conflict.
26 JOURNAL OF SMALL BUSINESS MANAGEMENT
The results also show that both the
extent and frequency of conflict in family
firms increase across generations. Specifi-
cally, third or later generation firms were
subject to more conflict than were either
first or second generation firms. We pro-
posed that accumulated organizational
learning (Senge 1992) could cause conflict
in second and third or later generation
firms to differ from conflict in first genera-
tion firms (those in which the founder is
still the owner/manager). Consistent with
expectations, the influence of the family
(FAMINOP, FAMOUT) and the extent of its
social interaction (SOCINTER) were weak-
est among first-generation firms and
strongest among third-generation firms. In
the second generation, the family had little
impact on the extent of conflict, and its
impact on the frequency of conflict was
limited to the influence attributed to the
family work group (FAMINOP). This lack
of influence by the family in the second
generation may be due to the continued
presence of the founder, who, whether in
an operating or non-operating capacity,
casts a shadow that suppresses the fam-
ilys influence on conflict. It may be that
until the founder is no longer present, the
influence of the family cannot be fully
realized.
Limitations and
Directions for
Future Research
As with any study, certain caveats must
be appliedto the results. The current study
was cross-sectional in nature and so could
not determine whether conflict within an
individual organization is episodic or en-
during in nature or whether the associa-
tions found here are truly causal in nature.
For example, it may be that increasing
social interactions among family members
are not the antecedent of conflict in the
firm but may result from conflict. In this
event, social interaction may provide a
mechanismfor coping with conflict in fam-
ily firms.
In addition, it should be noted that Katz
and Kahn (1978, p. 553) suggest that pri-
mary relationships . . . are affectively con-
nected rather than rationalistically
role-related. Yet in the current study, only
substantive forms of conflict were ad-
dressed.
Hofstedes (1980) findings that national
culture explained 50 percent of the differ-
ences in managers attitudes, beliefs and
values, a phenomenon he referred to as
collective mental programming, sug-
gests the need to validate our findings in
national settings beyond the U.S. Given
that our sample was exclusively drawn
from the U.S., we might find even greater
differences in samples drawn from across
nations that might provide clearer ethno-
centric contrasts.
Further, the study was conducted from
the perspective of the family business
owner/managers, who as key-informants
(Phillips 1981) would be expected to be
knowledgeable about conflict in their or-
ganizations. However, this approach did
not permit the researchers to determine
the reliability of each respondents percep-
tions of conflict within the organization by
ascertaining its correspondence tothe per-
ceptions of others, either family members
within in the organization or external to it.
To understand conflict in the family
firm, the observer must consider not only
the type of conflict under consideration,
the familys dynamics in raising or lower-
ing conflict, and the generation involved,
but also the crucial role being played by
the founder. The importance of the
founders influence reinforces Benniss
(1986) arguments that the founder/CEO is
the single most important determinant
shaping the beliefs, motives, commit-
ments, and predispositions of an organiza-
tions executives. While the role of the
founder/CEO has been firmly established
in the literature, our reviewand the results
of this study suggest that the roles of sig-
nificant others, including sleeping part-
ners and other pertinent family members
need further investigation.
DAVIS AND HARVESTON 27
The results of this study imply some
suggestions for family owner/managers
seeking to reduce conflict in their firms.
When they perceive substantive conflict as
undesirable, pressure can be applied to
specific points, depending on the genera-
tion of the family business. For example,
managers of third or later generation fam-
ily businesses might increase the involve-
ment of family members beyond the
day-to-day operating group. On the other
hand, managers of second-generation
family firms might keep the founder in-
volved in some managerial or operating
capacity, as this appears to be an effective
mechanism for suppressing conflict. Fi-
nally, among first generation family firms,
efforts to further reduce conflict may be
misplaced, as substantive conflict typically
was found to be lowest among founder-led
family firms. In sum, these results suggest
that conflict management choices in the
family business context are generationally
dependent. The interplay of the family and
the generational context of the firmshould
be considered when assessing substantive
or task-oriented conflict.
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