Family business agency conflict model

366 Pages·2013·5.57 MB·English

by  Dalton Penedo Sardenberg

DALTON PENEDO SARDENBERG

FAMILY BUSINESS AGENCY CONFLICT MODEL
– A STUDY OF BRAZILIAN FIRMS –

A Thesis
Presented for the degree of
Doctor of Philosophy

BIRMINGHAM BUSINESS SCHOOL
2012
FAMILY BUSINESS AGENCY CONFLICT MODEL
– A STUDY OF BRAZILIAN FIRMS –

by

Dalton Penedo Sardenberg

A thesis submitted to the
University of Birmingham
in fulfilment of the requirements of the Degree of Doctor of Philosophy

Supervisor:
Professor John Child

Second Supervisor:
Professor Suzana B. Rodrigues

Birmingham Business School
University of Birmingham
June, 2012
University of Birmingham Research Archive

e-theses repository

This unpublished thesis/dissertation is copyright of the author and/or third
parties. The intellectual property rights of the author or third parties in respect
of this work are as defined by The Copyright Designs and Patents Act 1988 or
as modified by any successor legislation.

Any use made of information contained in this thesis/dissertation must be in
accordance with that legislation and must be properly acknowledged. Further
distribution or reproduction in any format is prohibited without the permission
of the copyright holder.
ABSTRACT

The aim of this thesis is to deepen understanding of how agency conflict
arises in the governance of family businesses. The constructs were proposed arising
from empirical research, involving four case studies of different Brazilian family-
owned companies, which were analysed inductively. Next, data from the literature
was used to validate those constructs, which became part of the proposed Family
Business Agency Conflict Model and to suggest articulated hypotheses.
This model identifies factors that can potentially increase, and those which can
mitigate, tensions between the actors involved representing family, ownership and
management within family-owned firms. It was subsequently tested through a survey
of 152 family-owned firms of varying size, which belonged to different economic
sectors and regions of Brazil. Structural equation modelling was used to test the
empirical validity of the model, with reference to hypotheses concerning the variables
which influence agency conflict. The model was found to predict 38 per cent of the
variance in agency conflict.
Four variables were found which explain directly the agency conflict in family
businesses: strategic alignment, social alignment, trust and impartiality. Therefore,
the findings of this research besides focusing on the usual procedural aspects of
governance, such as disclosure and control, include behavioural elements which
constitute a step ahead in the study of corporate governance in family business.

Keywords

Agency conflict, corporate governance, family business.

ii
My joy in learning is partly that it
enables me to teach.
Seneca

iii
ACKNOWLEDGMENTS

In the continuous learning process that I underwent throughout the
development of this thesis, many have made decisive contributions, and I should like
to record my indebtedness to them.
In the first place I would like to put on record the fundamental role of my
supervisor, Prof. John Child, who, always in stimulating fashion, posed questions that
challenged the way the study was being carried out, thereby drawing out new
insights. His wisdom and serenity will remain forever a source of inspiration in my
activities as a professor and researcher.
Prof. Suzana Braga Rodrigues, from whom I received important guidance,
also deserves my thanks. She was initially my main supervisor, and even after her
departure for the Erasmus University Rotterdam, we remained in close contact. Her
objectivity, lucidity and academic rigour were essential for laying the foundations
necessary for the preparation of this dissertation.
Emerson de Almeida, Dean of the Fundação Dom Cabral, who was the first to
suggest to me the challenge of doing a doctorate outside Brazil, really started the
whole process.
I record my debt to the Fundação Dom Cabral for sponsoring the doctorate,
and to all my colleagues in this institution who have supported me with
encouragement and suggestions. I would like to mention especially, those that
distributed and gathered the completed survey questionnaires: Adriana Netto,
Antônio de Pádua S. Teixeira, Gilmar Mendes, José Helio Jóia, Juliana Costa
Gonçalves, Luzia Frönlich, Marcelo Pelágio Bonfim, Maria Eliane Longo, Maria
Teresa Roscoe, Paulo Emílio Carreiro, Ricardo Langanke, Seniria Maria Silva,
Valdemar Barros Filho and Vinícius Vieira de Freitas.
To my friend José Antônio de Sousa Neto who generously introduced me to
the University of Birmingham, where he himself had obtained his Master’s and
Doctoral degrees, I record my obligation.
Marina Araújo and Rafael Diogo Pereira, researchers who through extensive
exchanges of ideas contributed so much to the positive evolution of this study
deserve special mention.
iv
I would like to thank Roger Arthur Gough for our English classes, where we
went over this thesis paragraph by paragraph, with the aim of producing a final
version that would be in the best British style.
Prof. Plínio Rafael Monteiro gave me his invaluable aid and support in the use
of statistical packages. Likewise, my thanks to all the professors of the University of
Birmingham, whose classes have helped me to augment my understanding of the
content relevant to the development of this thesis. In the same way I thank the
professors of FACE – the Faculty of Administration and Economic Sciences of the
Federal University of Minas Gerais who allowed me, exceptionally, to complete the
courses relative to the credits recommended by my supervisors.
My sincere thanks go to all those who have kindly answered my survey,
forming the data base necessary for doing the statistical analyses, and also,
especially, the family, and nonfamliy members of the four companies studied, who
have not been cited here for reasons of confidentiality, and who received me with
open arms, readily sharing with me their views of the family and business issues, and
the tensions arising out of the interaction between the two.
My father and mother, Carlos Paiva Sardenberg (in memoriam) and Maria
Nazareth Penedo Sardenberg, must be mentioned, for inculcating in me a spirit of
perseverance and commitment to the reaching of one’s personal goals.
My sons Arthur and Miguel Sardenberg have made their contribution in the joy
they have provided every moment we have been together, and for showing me that
curiosity and involvement with the object that awakens it are central elements in the
learning process.
This mission would have been an impossible one without the special
encouragement and companionship of my wife Andréa Tamiozzo da Costa
Sardenberg, whose untiring dedication to our children minimized the effects of the
inescapable lack of the attention that they deserved, due to the time that I had to
devote to professional and academic activities. To her go out my love and gratitude.
And finally I would like to thank God for the gift of life, and the inspiration to
develop the talent that I have been blessed with, so that at the end of my earthly
sojourn, I will have been able to return to others a little of everything I have received.

v
TABLE OF CONTENTS

I. INTRODUCTION
I.1. Background ………………………………………………………………………… 01
I.2. Research motives …………………………………………………………………. 02
I.3. Research objectives …............................................................... ……………... 04
I.4. Contribution of the research ……………………….……………………………... 05
I.5. Structure of the thesis …………….…….….……………………………………... 07
I.6. Format of this document ………………………………………………………….. 08

II. PRELIMINARY LITERATURE REVIEW
II.1. Family-owned company…………………………………………………………... 09
II.1.1. Family business definitions ………………………………………………. 09
II.1.2. Family business characteristics …………………………………………. 15
II.1.3. Family business conflicts …………………………………………………. 19
II.2. Corporate Governance and Agency Theory ………………………………..…. 23
II.2.1. The real meaning of Corporate Governance …………………………… 23
II.2.2. Agency Theory within the Corporate Governance studies …………… 27
II.2.3. Agency Theory applied to a Family Business ……………………..…… 31
II.2.4. Criticisms of Agency Theory ……………………..………………………. 34

III. QUALITATIVE RESEARCH METHODOLOGY
III.1. Research methodology approach ……………………..……………………..… 39
III.2. Grounded Theory ……………………..……………………………………….… 39
III.2.1. Initial data collection …………………….……………………………..… 43
III.2.2. Application of the method …………………….………………..……..… 45
III.2.3. Results of non-participative observation …………………....……..… 47
III.3. Case Studies ……………………..…………………………………………….… 49
III.3.1. Interviews .…..………………..………………………………………...… 50
III.3.2. Interview guide ………………..………………………………….…….… 51
III.3.3. Unit of analysis ……………..………………………………….…….…... 54
III.3.4. Secondary data gathering ……………..………………………………... 55

IV. INTRODUCTION OF CASE STUDIES
IV.1. The Milk & Candies Case ………………..………………...………...……….… 57
IV.2. The Bental Case .……………..………………...………...................……….… 75
IV.3. The Prize Case .……………..………………...………...................………...… 104
IV.4. The Case of Minas Agro Group ………………..………………...………...….. 122

V. THEORETICAL MODEL AND HYPOTHESES
V.1. Building a theoretical model ………………….………………..………………... 135
V.2. The use of Atlas.ti ………………….…………………………..………………... 140
V.3. The process described …………….…………………………..………………... 141
V.4. Proposed theoretical model ………………….………………..………………... 145
V.5. Validation of hypotheses and constructs through a comparison of the …….. 146
literature
vi
V.5.1. The Alignment Construct ……..…….………………..………………..... 147
V.5.2. The Level of Independence and Efficiency of the Board Construct … 153
V.5.3. The Family and Business Interaction Construct ….……..…….……… 160
V.5.4. The Management Control Construct …...…………………..…….…..... 167
V.5.5. The Trust Construct ...…………………….…………………..………..... 175
V.5.6. The Disclosure and Transparency Construct ………………………..... 179
V.5.7. The Legitimacy Construct …...…..……….…………………..………..... 188
V.5.8. The Competence Construct ………………...…………………………... 197
V.5.9. The Opportunism Construct …………………………………………...... 201
V.5.10. The Impartiality Construct ……………………………………….…...... 207
V.5.11. The Altruism Construct ……………………………………….….......... 212
V.5.12. The Comprehension of Social Roles Construct …...……..………..... 217
V.6. Development of the Questionnaire ……………………………………………... 226
V.6.1. Problem definition …………………………………………………………. 226
V.6.2. Preparation of a questionnaire draft …………………………………….. 226
V.6.3. Pilot test …………………………………………………………………..... 228
V.6.4. Final revision …………………………………………………………...….. 229
V.6.5. Questionnaire application ……………………………………………..…. 235

VI. QUANTITATIVE RESEARCH METHODOLOGY
VI.1. Data analysis …………………………………..………..……………………..… 236
VI.1.1. Exploratory Analysis …………………..…………..………..….…….… 236
VI.2. Analysis of the quality of the measurement ..………………..…………….… 247
VI.2.1. Analysis of the dimensionality …………………….…..…………….… 247
VI.2.2. Reliability analysis and overall measurement quality …..…………... 252
VI.2.3. Convergent and discriminant validity ….……………..………….….… 257
VI.3. Nomological validity – Test of the model ….……………..………………....... 261
VI.4. Summary of the quantitative results ….…………..…………..………..……... 264
VI.5. The Family Business Agency Conflict Model - validated version ….…….… 265
VI.6. Findings …………………………………..………..…………………………..… 266
VI.6.1. Control variables for conflicts in family businesses ………..……..… 266
VI.6.2. Analysis of the Family Business Agency Conflict Model as a whole 268

VI.6.3. Analysis of each construct and comparison with qualitative findings 269

VII. DISCUSSION
VII.1. Closing remarks ………..………..……………………………..………..……... 281
VII.2. Contributions to knowledge …....……………………………….……..……... 283
VII.2.1. Theoretical and empirical contributions …….………………………. 285
VII.2.2. Practical implications ….……………………………………………….. 288
VII.4. Limitations and directions for further research …………………………….… 298

REFERENCES ……………………………………………………………………….… 303

APPENDIX A: Questionnaire for quantitative survey .………………………….….. 339

vii
LIST OF ILLUSTRATIONS

Figure 1.1 Scheme representing the development of the structure of the 07
thesis

Figure 2.1 Three-circle-model 18

Figure 2.2 Three levels of individual and collective conflict in the 21
entrepreneurial environment

Figure 3.1 The grounded theory 'data dance' 42

Figure 3.2 Evolution of the Brazilian capital market 48

Figure 4.1 Haag Family Tree 60

Figure 4.2 Mills Family Tree 61

Figure 4.3 Milk & Candies’ executive team 61

Figure 4.4 Bental time line 76

Figure 4.5 Corporate structure of the Talma Group 86

Figure 4.6 Structure of the Talma Family in 2008 97

Figure 4.7 Governance model of the Bental Group in 2008 98

Figure 4.8 Schedule of activities of Bental’s Board of Directors 99

Figure 4.9 Organization chart of Prize 111

Figure 4.10 Enterprises of the Minas Agro Group 122

Figure 5.1 The grounded theory analytic process 137

Figure 5.2 Open coding sequence 138

Figure 5.3 Theoretical model construct on the basis of Grounded Theory 145

Figure 5.4 Categories of the Alignment construct 147

Figure 5.5 Categories of the Level of Independence and Efficiency of the 154
Board construct

Figure 5.6 Categories of the Family and Business Interaction construct 161

viii