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1 May 2016 CFA Institute Journal Review

How Do CEOs See Their Roles? Management Philosophies and Styles in Family and Non-Family Firms (Digest Summary)

  1. Michal Szudejko

By collecting data from more than 800 CEOs in 22 emerging market economies, the authors find that CEO management styles and philosophies vary with firm ownership and governance structures. These factors supersede more traditional variables—for example, GDP per capita, legal origin, and corruption or property rights measures. CEO origins and firm ownership structure seem to be the first-order drivers for the relationship between the company and its stakeholders and shareholders.

What’s Inside?

The authors show that the allocation of firm control rights and governance structures influence CEOs’ management approaches. The firm-level variation in these two factors turns out to be as important in explaining the management philosophies as country- or industry-level differences. The CEOs of family-run firms tend to display a stakeholder-oriented focus—that is, a greater accountability to employees, customers, and creditors than to shareholders. They also use a more hierarchical approach and are more reluctant to change. CEOs of non-family firms advocate an approach that maximizes shareholder value, relies more heavily on delegation, and flatters management. Finally, they consider themselves accountable for effecting strategic change within the firm.

How Is This Research Useful to Practitioners?

The authors show that firm type is fundamental to explaining variations in CEO philosophy, regardless of the market where the firm is located. In particular, CEOs of family firms adopt a different philosophy from those of non-family firms, perhaps because of the CEO selection process or variations in firm culture. The authors also suggest that the stakeholder focus in family-run firms may not be the result of an economy-wide equilibrium that emerges from cultural, financial, or economic differences. Instead, it may depend on the governance and ownership structure of each firm. It may also be possible that the survival rates—or even entry rates—of different types of firms are significantly affected by economic conditions.

The authors believe that their research is a first step in understanding how management philosophies differ among CEOs and the role these differences play in the broad economy. Further research should focus on the transition process from one CEO type to another because of, for instance, changes related to the life cycle of a company and how these dynamics influence the overall economy.

A possible practical application of the research relates to regulators who, using the findings of this and subsequent research, may alter policies toward governance rules in companies with different ownership structures.

How Did the Authors Conduct This Research?

The data are from a survey conducted in the first half of 2007 in association with the World Bank. Questionnaires were sent to the CEOs or managing directors of the largest 100 companies in 24 emerging markets. The survey contains eight sections: company information, country culture, company culture, the CEO’s personal information, educational background, prior work experience, business approach, and family background. The survey data are augmented with information obtained from firm websites and annual reports, OneSource, and Bloomberg.

The authors use data from markets where they received at least 15 completed surveys. The final sample is composed of 823 CEOs from 22 markets. The overall response rate is 37.4%. The authors divide CEOs into four mutually exclusive groups: founder CEOs, related CEOs, professional CEOs of family firms, and professional CEOs of non-family firms.

Abstractor’s Viewpoint

This research is interesting, and the authors are characterized by a high command of statistical tools and methods. The data collected seem to be extraordinary in terms of scope and contents. Yet the findings presented in the research are a bit surprising to me. On the one hand, it is fairly obvious that the profile of the CEO would be somewhat connected to the characteristics of the firm (e.g., whether it is family run). On the other hand, such a result would contradict the claimed novelty of the paper.

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