Sovereignty matters! Revisiting the family influence–stakeholder orientation relationship

Abstract

The relationship between family influence and stakeholder orientation is complex as studies with both positive and negative findings indicate. Thus, understanding the real nature of this relationship requires relaxing linear relationship assumptions and examining underlying mechanisms. By utilizing a unique sample of 445 German firms and invoking a structural functionalist view, we suggest that the relationship between family influence and stakeholder orientation is U-shaped. To deepen our understanding, we introduce the concept of sovereignty to family firm theory, i.e., having an illimitable, perpetual, and indivisible power over an organization. We observe that sovereignty is a positive mediator of the family influence-stakeholder orientation relationship and this mediation is positively moderated by financial goals. Our results suggest that there are different motives for firms with both high and low family influence to pursue stakeholder orientation. Hence, family influence alone is not adequate to account for the differences among family firms with respect to stakeholder orientation. Accordingly, we show how sovereignty goals offer a way to make this distinction in terms of stakeholder orientation between firms with high and low family influence. Finally, our results also suggest that stakeholder orientation and financial goals can be aligned in firms with family influence.