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Family businesses lay off fewer workers, according to a study


Family businesses have stronger incentives to avoid practices such as workforce reductions, which can damage their emotional attachment and negatively affect their reputation and image in the community. This is one of the conclusions of an international research project, in which the Universidad Carlos III de Madrid (UC3M) has participated, which explores whether family-controlled firms offer greater job security compared to non-family firms.

Despidos de en las empresas.

Scholars from Arizona State University, Free University of Bozen-Bolzano, IMD Business School and Michigan State University also participated in this study, which is published in the Journal of Management Studies. They  have used a large sample  of more than 3,100 listed companies from 33 countries over a 10-year period (between 2007 and 2016). The findings show that family firms are more reluctant to make job cuts than their non-family counterparts. The evidence also suggests that this difference becomes more pronounced in countries where there is high political risk and, consequently, the institutional protection for employees may be more uncertain.

These results indicate that “the affective endowment that family firms prioritize (known as socio-emotional wealth (SEW)) which goes beyond the organizational goal of value maximization (without forgetting financial goals) seems to have a positive effect on employees’ welfare. Therefore, family firms provide a work environment aligned with the desire to offer employment security,” states one of the study's authors, María José Sánchez Bueno, professor at the Department of Business Administration (UC3M).

Considering the role played by family control and political risk in terms of employment security, this research provides an integrative perspective to explore internal and external factors that may affect workers’ protection in potentially “undesirable” conditions such as the elimination of positions. In particular, family businesses appear to be less likely to make decisions such as employee downsizing because doing so threatens their socio-emotional wealth (workforce reductions evoke negative perceptions such as lack of trust or the weakening of loyalty in remaining employees). “Our study reveals that family control has an important effect on job security, and this effect may be more critical under situations of political turbulence,” says professor Sánchez Bueno.

This line of research focuses on job security, which, according to these scholars, is a key issue for our society as the ability to cover essential expenses depends on enjoying lifetime employment. “Even during good economic periods, companies may reduce their head count because employee downsizing has become a worldwide phenomenon aimed at reducing costs and improving efficiency, for example”, concludes María José Sánchez Bueno.

Bibliographic reference: Gomez-Mejia, L.R., Sanchez-Bueno, M. J., Miroshnychenko, I., Wiseman, R. M., Muñoz-Bullón, F., De Massis, A. (2023). Family control, political risk and employment security: A cross-national study. Journal of Management Studies, forthcoming. Open Access.