How do directors of family businesses react to unsatisfactory situations or work to avoid them? Albert Hirschman’s Exit, Voice and Loyalty framework is applied to the Family Business governance context in order to improve board functioning and ultimately firm performance.

1. I N T E R C O N T I N E N T A L M I A M I | M I A M I ,
F L O R I D A
EXIT, VOICE AND LOYALTY IN THE
FAMILY BUSINESS BOARD ROOM
John Neff, DM. Case Western Reserve University

2. # F F I C O N F E R E N C
EXIT, VOICE AND LOYALTY IN THE FAMILY
BUSINESS BOARDROOM
• Introductions –
• Case Study: What’s a Director to do?
• Review of Hirschman’s analysis of E, V & L and Governance
• Family Business Boards, research, issues and opportunities
• Application of Exit, Voice and Loyalty to Family Firms…
• Questions/Discussion – What else would be helpful to know?

3. # F F I C O N F E R E N C
WHAT SHOULD A DIRECTOR DO,
IF THE BUSINESS IS ‘GOING TO POT’?

4. # F F I C O N F E R E N C
IF YOU FOUND YOURSELF IN THIS SITUATION?
NOT W.W.L.D.D. But W.W.Y.D
WHAT
WOULD
YOU
DO?

5. # F F I C O N F E R E N C
DEAR BOARD MEMBER – YOUR CEO WANTS TO
HELP YOUR CUSTOMERS BREAK FEDERAL LAW…
“For a lot of conventional
companies, I don’t think they’d
want to take the risk,” says
Hagedorn, a short, bald 60-year-
old with sharp blue eyes. “I mean
I’ve talked to some other friends
and CEOs who basically shake
their head.”

6. # F F I C O N F E R E N C
WHAT SHOULD A DIRECTOR DO,
IF THEIR BOARD IS GOING TO ‘POT’?
 Forbes - “Cannabis Capitalist: Scotts’
CEO Bets Big On Pot Growers
 Milwaukee Business Journal - Former
Briggs & Stratton chief quits Scotts
Miracle-Gro board over CEO's bad
language
 Wall Street Journal - Cursing in the
Board Room? Scotts Loses Three
Directors After Salty Language
SCOTTS MIRACLE-GRO

7. # F F I C O N F E R E N C# F F I C O N F E R E N C
HIRSCHMAN’S – EXIT, VOICE AND LOYALTY
USEFUL IN THE FAMILY BUSINESS BOARDROOM?

8. # F F I C O N F E R E N C
ALBERT O. HIRSCHMAN (1915 - 2012)
“Mr Hirschman’s most
famous book, …,
remains as suggestive
today as it was when it
first appeared in 1970,
for managers and
policymakers.”
Economist Magazine,
December, 22, 2012.
And
Families

9. # F F I C O N F E R E N C
HIRSCHMAN’S FRAMEWORK
Reponses to Organizational Dissatisfaction: FAMILY BUSINESS
BOARDROOM
• EXIT – Resign from Family Business board… (entrenches status quo,
undermines change?) exit of board members, not as crucial as exit of
customers…?
• VOICE – Advocate for change. Discuss/raise issues relating to
Dissatisfaction/Organizational Decline.
• LOYALTY – Remain on Family Business board - support management/remain
silent. Passive but hopeful - see improvement as possible.
• NEGLECT – Lax or disregardful behavior. Remaining while disengaged
(negative connotation). Discouraged - seeing improvement/recovery as
unlikely.
Sources:
(Hirschman, 1970)
(Withey, Cooper, 1989)
(Litz, Turner, 2013 )

10. # F F I C O N F E R E N C
DIRECTOR RESPONSE TO
ORGANIZATIONAL DECLINE
Loyalty Voice
Neglect Exit
ActivePassiv
e
Destructiv
e
Constructiv
e
Source: (Judge, 1995)

11. # F F I C O N F E R E N C
INTERACTION OF REPONSES TO
ORGANIZATIONAL DISSATISFACTION
• Interaction of EXIT and VOICE –
• Threat of Exit enhances the effectiveness of Voice.
• High cost of Exit – encourages voice
• Lack of Exit options/cost of Exit -
• Investment in/Commitment to Family Business – attempt Voice before Exit
• Impact of Loyalty on EXIT and VOICE –
• Loyalty dampens tendency toward Exit
• Loyalty tend to encourage Voice
• Other Factors –
• Leadership impact on Voice/Exit (McClean, Burris & Detert, 2013).
• Leadership impact on Employee Voice (Chan, 2013).
Sources:
(Hirschman, 1970)

12. # F F I C O N F E R E N C
BOARD DUTIES – (THEORETICAL BASIS)
Control – (Agency theory, Stewardship theory)
- Control tasks of board in family businesses (Brammens, Voordeckers,
2014). Level of engagement did not change from 1st Gen to Later
Generations.
Advice and Consent – (Resource Dependence, Stewardship theory)
- Experience & Expertise
- Stewardship perspective on board member duties (enhance voice?)
- Special case of Advisory Boards.
Source:
(Bammens,
Voordeckers, 2008)

13. # F F I C O N F E R E N C
Source:
(Corbetta & Salvato, 2004)
FAMILY BUSINESS – CONTEXTUAL VARIATIONS

14. # F F I C O N F E R E N C
FAMILY FIRMS AND BOARDS
• UK sample of medium & large private firms (family & non-family) – Family firm
boards tended to be older, more stable, have more female directors, more
sector experience, co-located, fewer multi-directorships. (Wilson, Wright,
Scholes, 2013).
• Matched pair sample of 73 non-listed firms in UK (family & non-family) –
CEO’s had longer tenures & directors tended not to be directors at other
firms. (Westhead, Cowling, Howorth, 2001).
• Columbian private firms – family firms, lower CEO and Director turnover and
lower presence of outside directors than non-family firms. (Gonzalez,
Guzman, Pombo Trujillo, 2013).
• Directors preference for EXIT only after VOICE ineffective. Director’s feel
responsibility to improve situation before resorting to EXIT (Hoogmiemstra,
Van Manen, 2002).
• Written strategic plans associated with both Boards of Directors and Advisory
Boards. Formal strategy process only with Advisory Boards. (Blumentritt,
2006)

15. # F F I C O N F E R E N C# F F I C O N F E R E N C
BOARD PROCESS AND EXIT, VOICE AND LOYALTY

16. # F F I C O N F E R E N C
BOARD PROCESS MODEL
Source:
(Forbes, Milliken, 1999)

17. # F F I C O N F E R E N C
BOARDROOM BEHAVIOR…
Behavioral Norms in the
Boardroom…
- Etiquette/Civility
- Communication
- Relationships
- Openness
- Trust
- Cognitive vs. Affective Conflict…
- Use of Skill/Knowledge
- Board Cohesion
- Effort Norms

18. # F F I C O N F E R E N C
CONCLUDING THOUGHTS AND FURTHER
RESEARCH OPPORTUNITIES
• Further Examination of ‘Boards of Directors as well as ‘Advisory
Boards’. They may serve different purposes and/or function differently
(Blumentritt, 2006). Do ‘Exit’ and ‘Voice’ function in the same way in a
fiduciary board as with a board of advisors?
• Fiduciary board context. Listed & unlisted UK firms (Long, Dulewicz,
Gay, 2005)
• Boards as ‘groups’ and related models of effectiveness. How do group
Norms and behaviors impact ‘Voice’ or ‘Exit’? How are these ‘norms’
different in the family firm context? (Forbes, Milliken, 1999)
• Board Processes to improve Board Effectiveness (Finkelstein, Mooney,
2003). What is ‘board effectiveness’ in family firms?
• Presence of outsiders associated with aspects of board functioning –
Effort Norms and Board Cohesion (Bettinelli, 2011).

19. # F F I C O N F E R E N C
OTHER PERSPECTIVES FOR RESEARCH –
3-CIRCLE MODEL & EXIT, VOICE & LOYALTY
EXIT VOICE LOYAL
TY
NEGLEC
T
Family/Management/Owner
Family/___________ /Owner
Family/Management/______
_____ /Management/______
Affiliated Directors (CPA, etc.)
Independent Directors

20. # F F I C O N F E R E N C
• Bammens, Y., & Voordeckers, W. (2008). The board’s control tasks in family firms: Theoretical perspectives and exploratory evidence. The
Value Creating Board: Corporate Governance and Organizational Behavior, 413-422.
• Bettinelli, C. (2011). Boards of directors in family firms: An exploratory study of structure and group process. Family Business Review, 24(2),
151-169.
• Blumentritt, T. (2006). The relationship between boards and planning in family businesses. Family Business Review, 19(1), 65-72.
• Corbetta, G., & Salvato, C. A. (2004). The Board of Directors in family firms: one size fits all?. Family Business Review, 17(2), 119-134.
• Finkelstein, S., & Mooney, A. C. (2003). Not the usual suspects: How to use board process to make boards better. The Academy of
Management Executive, 17(2), 101-113.
• Forbes, D. P., & Milliken, F. J. (1999). Cognition and corporate governance: Understanding boards of directors as strategic decision-making
groups.Academy of management review, 24(3), 489-505.
• González, M., Guzmán, A., Pombo, C., & Trujillo, M. A. (2013). Family firms and debt: Risk aversion versus risk of losing control. Journal of
Business Research, 66(11), 2308-2320.
• Hirschmann, A. O. (1970). Exit, voice and loyalty. Responses to Decline in Firms, Organizations, and States. Cambridge.
• Hooghiemstra, R., & Van Manen, J. (2002). Supervisory Directors and Ethical Dilemmas:: Exit or Voice?. European Management Journal, 20(1),
1-9.
• Judge, W. Q. (1995). Outside director responses to organizational decline: Exit, voice, loyalty, and neglect. Corporate Governance: An
International Review, 3(1), 9-20.
• Litz, R. A., & Turner, N. (2013). Sins of the father’s firm: Exploring responses to inherited ethical dilemmas in family business. Journal of
business ethics,113(2), 297-315.
• Long, T., Dulewicz, V., & Gay, K. (2005). The Role of the Non‐executive Director: findings of an empirical investigation into the differences
between listed and unlisted UK boards. Corporate Governance: An International Review, 13(5), 667-679.
• McClean, E. J., Burris, E. R., & Detert, J. R. (2013). When does voice lead to exit? It depends on leadership. Academy of Management
Journal, 56(2), 525-548.
• Westhead, P., Cowling, M., & Howorth, C. (2001). The development of family companies: Management and ownership imperatives. Family
Business Review, 14(4), 369-385.
• Wilson, N., Wright, M., & Scholes, L. (2013). Family business survival and the role of boards. Entrepreneurship Theory and Practice, 37(6),
1369-1389.
• Withey, M. J., & Cooper, W. H. (1989). Predicting exit, voice, loyalty, and neglect. Administrative Science Quarterly, 521-539.
References

21. # F F I C O N F E R E N C
• Could ‘stewardship’ perspective impact Exit & Voice?
• How to create the atmosphere for “Meaty Discussions” (constructive
cognitive conflict) – ‘Quality Voice’, not just quantity.
• Relationship between Trust and Voice (Including various forms of
Trust)
• Next Generation – No Trust/No Voice (can’t remember exactly what
this was, perhaps if Next Gen is not trusted, they don’t get a voice?)
• What about the ‘receiving’ end of Voice – what if voice is not really
heard or taken seriously. Might a director ‘exit’ if their Voice is
ignored?
• Is there a ‘cost’ to Voice – eg. Directors who speak up too much,
‘improperly’, etc. Could they face criticism/sanctions of some sort
• Behavioral norms around ‘proper’ voice.
• Does next generation need to establish some level of credibility in
order for their ‘voice’ to be allowed and/or heard?
• Could there be different types of ‘voice’? Eg. The political nature of
some communication, in the family firm setting
DISCUSSION & AUDIENCE IDEAS ABOUT WHAT ELSE WE NEED
TO LEARN ABOUT BOARD FUNCTIONING & E,V&L FRAMEWORK

22. # F F I C O N F E R E N C
• Exit – when and how do Directors exit – voluntary or involuntary
• Impact of ‘Time’ – how long does it take to decide to Exit?
• Also, how persistent must Voice be to be effective?
• How might time be involved for Voice to be heard, processed and
then acted upon?
DISCUSSION & AUDIENCE IDEAS ABOUT WHAT ELSE WE NEED
TO LEARN ABOUT BOARD FUNCTIONING & E,V&L FRAMEWORK