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Corporate Diplomacy and Family Firm Longevity

Research output: Contribution to journalArticlepeer-review

Luciano Ciravegna, Liena Kano, Francesco Rattalino, Alain Verbeke

Original languageEnglish
Pages (from-to)109-133
Number of pages25
JournalEntrepreneurship: Theory and Practice
Volume44
Issue number1
Early online date7 Apr 2019
DOIs
Accepted/In press7 Apr 2019
E-pub ahead of print7 Apr 2019
Published1 Jan 2020

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Abstract

We discuss family firm longevity building upon a new conceptual lens, informed by transaction cost economics (TCE), but augmented with corporate diplomacy thinking. Family firms, because of their superior foundation of bonding social capital (interpreted here as a firm-specific, transaction cost-reducing governance mechanism), have an intrinsic advantage vis-à-vis nonfamily firms with regards to utilizing network ties supportive of longevity. Most family firms, however, fail to leverage effectively this governance tool to achieve longevity, due to bifurcation bias (BB), that is, the unchecked prioritization of assets and relationships that hold affective value for the family. We propose that corporate diplomacy, through its three process steps, familiarization, acceptance, and engagement, can help the family firm augment its baseline reservoir of social capital, and allows improved economizing on contracting challenges that endanger its survival. Externally, corporate diplomacy helps economizing on expressions of BB in relationships with outside stakeholders, thus augmenting bridging social capital. Internally, it can address biased treatment of family versus nonfamily human assets, thereby augmenting bonding social capital. Intergenerationally, corporate diplomacy supports access to, and improved reliance upon the firm’s social capital by next generation family members. The family firms that focus on corporate diplomacy processes and the resulting social capital creation greatly improve their chances of longevity.

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