Ready for a crisis? How supervisory boards affect the formalized crisis procedures of small and medium-sized family firms in Germany

• Published in: Review of managerial science 2015-03, Vol.9 (2), p.317-338
• Main Authors: Faghfouri, Pedram, Kraiczy, Nils D., Hack, Andreas, Kellermanns, Franz W.
• Format: Article
• Language: English
• Subjects: Accounting/Auditing; Alliances; Banking; Bankruptcy; Business and Management; Business Strategy/Leadership; Family owned businesses; Marketing; Organizational structure; Original Paper; Small & medium sized enterprises-SME; Socioeconomic factors; Studies
• ISSN: 1863-6683; 1863-6691
• DOI: 10.1007/s11846-014-0158-0

Overcoming a crisis situation in which the socioemotional wealth (SEW) of a family is at risk can be threatened by a lack of formal crisis procedures, which can increase the probability of organizational decline. Thus, not being prepared for a crisis situation may be a critical factor in the long-term survival of family firms. From a corporate governance perspective, supervisory boards may achieve higher levels of crisis readiness. Applying the resourced-based view and SEW theory, we analyze the relationship between family ownership and formalized crisis procedures in 150 small and medium-sized German firms. Our results show that formalized crisis procedures decrease as family ownership increases. Including supervisory boards in our analysis, we find a significant moderating effect of supervisory boards on the relationship between family ownership and formalized crisis procedures. Specifically, our results suggest that family firms with supervisory boards show similar levels of formalized crisis procedures as non-family firms with supervisory boards. In contrast, family firms without supervisory boards exhibit lower levels of formalized crisis procedures compared with non-family firms without supervisory boards. We also discuss managerial implications, limitations, and future research.