chapter  1
Partitioning socioemotional wealth to stitch together the effectual family enterprise
BySARAS SARASVATHY, ISHRAT ALI, JOERN BLOCK
Pages 33

This chapter seeks to bring together two recent and growing literatures – family business and effectuation. The use of effectual logic by expert entrepreneurs has begun to be empirically validated through a series of recent publications (Dew, Read et al., 2009; Read et al., 2009; Sarasvathy & Venkataraman, 2011; Wiltbank et al., 2009). In light of this consider the scope of family business – for example, Miller and Miller (2005) estimates that between one-and two-thirds of public companies around the world are family controlled and over three-fourths of all jobs in the US are created by them (La Porta, Lopez-de-Silanes, & Shleifer, 1999; Villalonga & Amit, 2010). Yet, little work has been done on the use of effectual logic by family firms. To kick start future research at the intersection of family business and entrepreneurial expertise, we begin by summarizing what we have learned empirically about each of them as separate streams of literature. Thereafter we examine the implications of the empirical results for theoretical overlaps and finally push forward with an integrated theoretical specification for future research in this space. Whereas our first instinct was to seek to analyze the variance between family and nonfamily firms in their use of effectual logic, a deeper examination of both extant literatures suggested a pair of more nuanced approaches. These approaches are also very much in line with how the two separate literatures have been evolving. First, in the case of family firms, although early work focused on patterns of variation between family and nonfamily firms (Anderson & Reeb, 2003, 2004; Dyer & Whetten, 2006; Gallo, Tapies, & Cappuyns, 2004; Harris, Martinez, & Ward, 1994; Lee & Rogoff, 1996), more recently, heterogeneity within family firms has emerged as an interesting phenomenon in itself (Bammens, Voordeckers, & Van Gils, 2008; Chrisman et al., 2007; Dawson, 2011; Eddleston & Kellermanns, 2007; Schulze, Lubatkin, & Dino, 2003b; Schulze et al., 2001; Westhead & Howorth, 2007). Second, attempts to measure the use of effectual logic by average (as opposed to expert) entrepreneurs have shown that effectuation may be a formative construct better studied at the level of individual principles and heuristics than as a reflective uni-dimensional one (Chandler et al., 2011). Therefore, in our theoretical specification, we construct propositions around the differential use of individual effectual principles within family firms. This twin focus on the relationship between the deconstruction of effectuation and heterogeneity within the population of family enterprises led us to an unexpected insight. In particular, it led us to undertake a theoretically meaningful partitioning of a construct that has become increasingly important and central to the study of family business – namely, socioemotional wealth (Berrone et al., 2010; Gómez-Mejía

et al., 2007). We separate socioemotional wealth into factors that are focused on and driven by the need for family control and those that result in stewardship behavior toward both family and nonfamily stakeholders. We propose that the former hinder the use of effectual logic, whereas the latter enable and should facilitate it. The chapter is structured as follows. A brief introduction to effectuation including a summary of recently published work in the area is followed by a more detailed review of the empirical literature on family business, which we then organize, interpret, and analyze in terms of facilitating or hindering the use of individual effectual principles. The propositions arising out of this analysis highlight a contradiction – on the one hand, a major barrier in family firms to the use of the crazy quilt principle and, on the other, a natural facilitation of the same. Consequently, we conclude the chapter outlining the need to partition the notion of socioemotional wealth into issues of family-centered and other-centered components.