Emotions of family business decision makers and innovation performance

Abstract

The research suggests that emotions play a significant role in family business, however the research of the role of family business decision maker emotions in innovation performance is insufficient. Thus, there is little understanding of how emotions of decision makers are related to family business innovation performance. Can the emotions of the family business decision maker be a stimulus of a successful business? The aim of the paper is to reveal the role of family business decision maker emotions in family business innovation performance.

Full text

Emotions of family business decision makers and innovation performance
Neringa Gerulaitienė
Kaunas University of Technology
School of Economics and Business
Gedimino str. 50, LT-44239 Kaunas, Lithuania
Asta Pundzienė
Kaunas University of Technology
School of Economics and Business
Gedimino str. 50, LT-44239 Kaunas, Lithuania
Eglė Vaičiukynaitė
Kaunas University of Technology
School of Economics and Business
Gedimino str. 50, LT-44239 Kaunas, Lithuania
Problem definition
Family business dominates in economies of many countries (de Vries, 2019). It possesses
unique characteristics in comparison with non-family business including family traditions and
values, as well as the lifespan of the firm. Scholarly literature indicates that often family
business survives into the second generations (de Vries, 2019). The main problems of family
businesses are such as financial issues, the question of competence of family members,
business succession issues, inability to separate work and personal relationships when conflicts
are transferred from home to work and vice versa.
The research suggests that emotions play a significant role in family business (Michel et.
al. 2019); however the research of the role of family business decision maker emotions in
innovation performance is insufficient. Thus, there is little understanding of how emotions of
decision makers are related to family business innovation performance. Can the emotions of
the family business decision maker be a stimulus of a successful business?
In our research, innovation performance is defined as “the ability to transform innovation
inputs into outputs” (Zizlavsky, 2015, p. 818). In other words, innovation performance
encompasses different kinds of innovations such as product innovations, process innovations,
organizational innovations, as well as marketing innovations. Previous studies have focused on
understanding how family ownership affects business innovation performance. The findings
suggest that innovative business takes into account the risk and unconventional decisions
(Hess, 2017). However, the role of emotions was largely ignored.
Both positive and negative emotions can lead to significant decisions for business
innovation (Anderson and Thompson, 2004; Forgas, 1999; Stanley, 2010). Emotions of
decision makers, both family members and non-family members, might influence their actions
and that might boost innovation performance or hinder it.
In this research, family business decision makers might be a family or a non-family
members in managerial positions. Scholarly literature distinguishes the differences and
similarities between a manager-family member and a manager-non-family member. According

to Gomez-Mejia et al. (2011), family business avoids hiring a manager-non-family member,
because the owners are afraid of losing family business control and reveal its business secrets.
On the other hand, a manager-non-family member may bring new ideas and knowledge to the
business that may lead to innovation performance.
The aim of the paper is to reveal the role of family business decision maker emotions
in family business innovation performance.
This exploratory research provides several significant contributions in the field of
family business. First, this paper contributes to the scant literature on the role of emotions in
the family business. Second, the paper explains the relationship between diverse emotions of
family business decision makers and a family business innovation performance.
Theoretical foundation
Individual behaviour is influenced by many emotions (Chaudhuri, 2006), and these
emotions more or less can be characterized according to their action tendency (Frijda, 1986).
For instance, the emotion of fear is associated with uncertainty and avoidance of some
actions/withdrawal. The literature proposes a variety of methods to define and classify
emotions. The variety of definitions comes from two basic theoretical perspectives, such as
psycho-physiological and cognitive appraisal (i.e., constructionist). The psycho-physiological
theory considers deems that the source of emotion is the primary emotional experience without
individual cognition (Chaudhuri, 2006). While the cognitive appraisal or constructionist
perspective considers that diverse emotions occur from the combination of two fundamental
components – core affect and the elements of conceptualization (e.g., cultural knowledge and
situational context) (Gray et. al., 2017). Core affect is “a continuous assessment of one’s
current state, and it influences other psychological processes accordingly” (Schultz et. al.,
2010). The mood is an excellent example of core affect. The conceptualization takes into
account the cognitive appraisals of the environment. In accordance with constructionist
perspective, a family business decision maker can experience emotions based on their
interpretation of the situational context and thus, their ways of the expression of these emotions
(i.e., facial expression, gestures, language) may differ. Emotions such as anger or fear are often
defined as negative emotions, while the emotion of happiness is classified as a positive
emotion. Different emotions evoke different ideas that might determine appropriate actions of
the decision maker e.g. promote or inhibit the implementation of new ideas. Thus, we propose
the following:
Proposition 1. Emotions of the decision makers (both family and non-family members)
affect innovation performance of the family business.
Some researchers revealed that emotions promote innovativeness. Differences in
emotion regulation lead to differences in firm effectiveness (Zott and Huy, 2007). Stewart et.
al. (1999) discovered that age has a negative correlation with innovation and risk-taking. Older
owners tend to be more conservative, they do not make risky decisions, reducing their
entrepreneurial activities because their fear to lose family wealth (e.g. Kellermanns et al.,
2012). Other researchers state that manager-family member is often guided by emotions (e.g.
Bertrand and Schoar, 2006). Emotions of manager stimulates emotions of others, including

employees, family members, clients, investors, suppliers (Lockyer and McCabe, 2011). Thus,
we argue that manager-family member is more emotional than manager-non-family member
towards innovation performance of the family business. The emotions of family member
manager might affect firm innovation performance positively or negatively.
Proposition 2. Manager-family member is more emotional towards innovations
performance of the family business.
The conceptual model is presented below (see Figure 1).
Figure 1. Family business decision maker emotions and their impact on innovation
performance.
Methodology
The paper relied on multiple case studies approach because the role of family business
decision maker emotions and innovation performance is not explained thoroughly. Twelve
cases of Lithuanian family business were included in this research. Specifically, six innovative
and six non-innovative family businesses were selected from service, manufacturing and trade
industries. Innovative family businesses were chosen on the basis of the following criteria: the
number of new products/services created per year; the number of patents per year; awards and
honours in product innovation, percentage of revenue per year from new products/services.
Family businesses were chosen based on the definition of family business of the
European Commission and the criteria that it established (European Commission, 2018, p. 1):
“The majority of decision-making rights are in the possession of the natural person(s) who
established the firm, or in the possession of the natural person(s) who has/have acquired the
share capital of the firm, or in the possession of their spouses, parents, child, or children’s
direct heirs; The majority of decision-making rights are indirect or direct; At least one
representative of the family or kin is formally involved in the governance of the firm; Listed
companies meet the definition of family enterprise if the person who established or acquired
the firm (share capital) or their families or descendants possess 25 per cent of the decision-
making rights mandated by their share capital.”
The multiple case study contains secondary data analysis, structured interviews, and a
focus group. The structured interview consists of questions regarding the role of emotions,
Manager-family vs
manager-non-family
member
Family business decision
maker emotions
-Positive emotions
-Negative emotions
Innovation performance
-Product innovation
-Process innovation
-Organizational innovation
-Marketing innovation
P1
P2

family business innovation performance, the importance of types of family business decision
makers and their emotions. The sample of the case study included family business owners,
managers-family members/managers-non-family members, relatives, spouses of the family
business owners, non-family members of employees, and family members that are working in
family businesses. The focus group was used to engage in conversation with family business
employees (non-family members) and collect data about the role of emotions on family
business innovation performance. Secondary data included information about the respondent
and family business. The combination of aforementioned methods is used to collect detailed
information about the analysed phenomenon.
Results
In total 29 respondents (19 male and 10 female) participated in the research. 15
respondents represented innovative family businesses and 14 respondents – non-innovative
family businesses. The interviews were conducted with and the focus group was formed from
4 family business owners, 9 managers-family members, 3 managers-non-family members, 3
relatives, 4 spouses of the family business owners, 5 non-family members of employees, and 1
family member that is working in the family business. The majority of respondents (27) had a
higher education degree and other (2) - a college degree. More detailed data about the
respondents and family businesses is presented in the Annex 1.
The proposition 1 was approved among innovative family businesses. Respondents of
three (out of six) innovative family businesses have mentioned that they seek to manage their
emotions when they are making important strategic decisions for the firm and to follow
calculations, facts, and business logic: “If you begin with emotions, you will end bankrupt.
Business is business. Emotion in a good sense can help your creativity. In that case it is fine. I
know a few of these, who have a good emotion and start a business with that product. It turns
out later that all of those consumers are mere family members. And the conclusion is sad.
Business demands the shutdown of emotions.”
The responses among innovative family business respondents spread equally between
managers-family members, owners, and managers-non-family members. According to them, if
the business is run based on emotions, then it leads to business failure. Moreover, they
mentioned that positive emotions can generate some new business ideas that need to be verified
later with calculations. From non-innovative family businesses respondents only from one
family business paid attention to the importance of decision-maker emotions in the family
business and their impact on business innovation performance.
The proposition 2 was approved. The majority of respondents (eleven family businesses
out of twelve) distinguished that managers-family members are more emotional that managers-
non-family members: “The advantage of manager-non-family member is that she/he can make
decisions impartially. Non-family member would not rely on emotions and follow business
canons.” Interestingly, that all respondents of managers-non-family members also agreed that
they are less emotional comparing with family members.
The main reason of emotionality of managers-family members was mentioned as taking
higher responsibility: “First of all, there is a question of responsibility. You take a
responsibility for yourself and for everything: what you did, what you created and what you

have. You risk everything. Manager-non-family member just goes out and finds a new job
without any consequences. But you take a risk of everything.” At the same time, the responses
about the emotions and their effect on family firm innovation performance differed.
Respondents from three non-innovative family businesses argued that non-family member
could achieve better innovation performance in family business because they might have more
knowledge and competences.
Limitations and future directions
The research context should be broadened by involving family businesses with different
life cycles which may reveal some unique aspects of the role of emotions on family business
innovation performance. Future research might include more experienced countries with
deeper family business traditions and replicate the main findings. Finally, different
management roles of family business decision makers and control over the business should be
studied more thoroughly.
Acknowledgements. This project has received funding from the European Union’s
Horizon 2020 research and innovation programme under grant agreement No 810329.
References
Anderson, C. and Thompson, L. (2004), “Affect from the top down: How powerful individuals’
positive affect shapes negotiations”, Organizational Behavior and Human Decision
Processes, Vol. 95 No. 2, pp. 125–139.
Bertrand, M. and Schoar, A. (2006), “The role of family in family firms”, Journal of Economic
Perspectives, Vol. 20 No. 2, pp. 73–96.
Bertschi-Michel, A., Kammerlander, N. and Strike, V. M. (2019), “Unearthing and Alleviating
Emotions in Family Business Successions”, Entrepreneurship Theory and Practice,
available at: https://doi.org/10.1177/1042258719834016
Chaudhuri, A. (2006). Emotion and reason in consumer behaviour. New York, US: Routledge
Taylor & Francis Group.
De Vries, M. F. K. (2019), “Saving a Family Business from Emotional Dysfunction”. In Down
the Rabbit Hole of Leadership (pp. 101-105). Palgrave Macmillan, Cham.
Forgas, J.P. (1999), “On feeling good and being rude: Affective influences on language use
and request formations”, Journal of Personality and Social Psychology, Vol. 76 No. 6,
pp. 928–939.
Frijda, N. H. (1986). The emotions. Cambridge, UK: Cambridge University Press.
Gomez-Mejia, L.R., Cruz, C., Berrone, P. and Castro, J. (2011), “The bind that ties:
Socioemotional wealth preservation in family firms”, The Academy of Management
Annals, Vol. 5 No. 1, pp. 653-707.
Gray, K., Schein, C., & Cameron, C. D. (2017), “How to think about emotion and morality:
circles, not arrows”, Current opinion in psychology, Vol. 17, pp. 41-46.

Hess, E. (2017), “Here’s why emotions are the secret sauce of innovation”, available at:
https://www.forbes.com/sites/darden/2017/01/17/the-secret-sauce-of-innovation-
emotions/2/
Kellermanns, F. W., K. Eddleston, R. Sarathy, and F. Murphy (2012), “Innovativeness in
family firms: A family influence perspective”, Small Business Economics, Vol. 38 No.
1, pp. 85–101.
Lockyer, J. and McCabe, D. (2011), “Leading through fear: emotion, rationality and innovation
in a UK manufacturing company”, European Journal of International Management, Vol.
5 No. 1, pp. 48-61.
Russell, J. A. (2017), “Cross-Cultural similarities and differences in affective processing and
expression”, in Jeon, M. (ed.) Emotions and Affect in human factors and human-
computer interaction. Orlando: Academic press, pp. 123-141.
Stanley, L. J. (2010), “Emotions and family business creation: An extension and implications”,
Entrepreneurship: Theory & Practice, Vol. 34 No. 6, pp. 1085-1092.
Stewart, W., Watson, W., Carland, J. C., Carland, J. W. (1999), “A proclivity for
entrepreneurship: A comparison of entrepreneurs, small business owners, and corporate
managers”, Journal of Business Venturing, Vol. 14 No. 2, pp. 189-214.
Zizlavsky, O. (2016), “Innovation performance measurement: research into Czech business
practice”, Economic Research-Ekonomska Istraživanja, Vol. 29 No. 1, pp. 816-838.
Zott, C. and Huy, Q. N. (2007), “How Entrepreneurs Use Symbolic Management to Acquire
Resources”, Administrative Science Quarterly, Vol. 52 No. 1, pp. 70-105.

Annex 1. Data about the respondent and family business
Family
business
Size
Level of
innovation
Origin of the
respondent
Position of the respondent
Number of years in the
position
Education
Gender
Age
Firm A
70
Innovative
Family member
Manager
10
Higher
Female
45
Family member-relative
Manager
13
Higher
Male
46
Family member
Owner
23
Higher
Male
64
Firm B
100
Innovative
Non-family member
Manager
5
Higher
Female
55
Family member
Owners spouse/manager
25
Higher
Female
50
Firm C
130
Innovative
Family member
Manager
5
Higher
Male
28
Family member
Manager
3
Higher
Male
26
Non-family member
Manager
5
Higher
Male
34
Firm D
260
Innovative
Family member
Manager
5
Higher
Male
33
Non-family member
Employee
2
Higher
Female
39
Family member
Owner
25
Higher
Male
58
Family member
Owners spouse/manager
18
Higher
Female
58
Firm E
1000
Innovative
Family member
Manager/shareholder
6
Higher
Male
33
Relative
Manager
4
Higher
Male
34
Firm F
130
Innovative
Non-family member
Manager
10
Higher
Male
40
Firm G
14
Non-innovative
Family member
Owner
23
Higher
Female
63
Firm H
17
Non-innovative
Family member
Manager
2
Higher
Male
31
Firm J
16
Non-innovative
Family member
Employee
2
College
Male
21
Family member
Owners spouse/manager
19
Higher
Female
40
Firm K
26
Non-innovative
Family member
Manager
14
Higher
Male
36
Family member
Owners spouse/manager
14
Higher
Female
56
Non-family member
Employee
4
Higher
Male
28
Firm L
18
Non-innovative
Family member
Owner
25
Higher
Male
71
Family member
Manager
3
Higher
Male
45
Firm M
250
Non-innovative
Family member
Manager
5
Higher
Male
35
Family member-relative
Manager
2
Higher
Female
28
Non-family member
Employee
8
College
Female
30
Non-family member
Employee
1 month
Higher
Male
21
Non-family member
Employee
1
Higher
Male
36