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The F‐PEC Scale of Family Influence: Construction, Validation, and Further

Implication for Theory

Article  in  Entrepreneurship: Theory and Practice · May 2005

DOI: 10.1111/j.1540-6520.2005.00086.x

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The F-PEC Scale of Family Influence: A Proposal for Solving the
Family Business Definition Problem1
Joseph H. Astrachan, Sabine B. Klein, Kosmas X. Smyrnios

This article proposes an alternative method for assessing the extent of family influence
on any enterprise, enabling the measurement of the impact of family on outcomes such
as success, failure, strategy, and operations. This proposed method, utilizing a
standardized and valid instrument—the F-PEC—enables the assessment of family
influence on a continuous scale rather than restrict its use as a categorical (e.g., yes/no)
variable. The F-PEC comprises three subscales: power, experience, and culture. This
article discusses these scales in detail.

1
This paper is seeded in thoughts of the first named author, though these early ideas
were fully realized only following the second meeting of the International Family
Enterprise Academy in Amsterdam in 2000. Since this time, a number of discussions
have been held on this topic and researchers around the world (e.g., Germany, United
States, Australia) have begun an international collaboration on this research. The
operationalization of family vs. nonfamily enterprises has been a matter of concern
from the very beginning of family business research. In most studies, the categorization
of firms has culminated in the use of the classification as an independent variable. This
approach, while important, has contributed to several problems, such as the lack of
comparability of empirical data, confusion of what is meant by the term family
business, and unconstructive discussion among researchers.
The Definition Problem in Family Business Research

Although in 1989, Handler said that “defining the family firm is the first and most

obvious challenge facing family business researchers” (p. 258), more then 10 years

later, the challenge remains. To date, there is “no widely accepted definition of a family

business” (Littunen, & Hyrsky, 2000, p. 41). Instead, various definitions are reported in

the literature.

An analysis of the literature suggests three principal ways in which to consider

the plethora of definitions: content, purpose, and form. Most definitions and

classifications focus on content (e.g., Handler, 1989; Heck & Scannell, 1999; Litz,

1995). However, definitions cited earlier in the literature mostly concern ownership

(e.g., Berry, 1975; Lansberg, Perrow & Rogolsky, 1988), ownership and management

involvement of an owning family (Burch, 1972; Barnes & Hershon, 1976), and

generational transfer (Ward, 1987). In contrast, more recent definitions concentrate on

family business culture (Litz, 1995; Dreux IV & Brown, 1999).

A definition of family business can either serve a distinct research purpose (e.g.,

Dean, 1992) or assist in differentiating family from nonfamily firms (Klein, 2000a).

Moreover, definitions can be employed for structural purposes, such as subdividing a

sample into various categories (Daily & Thompson, 1994). Definitions can also be

employed for explanatory purposes. For instance, Harris, Martinez, and Ward (1994)

use a multifaceted definition to develop a theory about the evolution of family-owned

businesses from founder-managed firms to cousin-run enterprises.

Somewhat problematically, however, a number of investigators avoid the use of

clear definitions, maintaining that classification of family business is done on a case-to-

case basis. Lack of definitional clarity can be attributed to difficulties associated with

differentiating family from nonfamily enterprises (Wortman, 1995).

The F-PEC Scale of Family Influence 2

 Operationalization and specificity of definitions has improved in recent times.

However, one concern remains: A definition of family is often missing. This notable

absence poses problems, particularly in an international context where families and

cultures differ not only across geographical boundaries, but also over time. One way of

overcoming this problem, especially in empirical research, is to specify levels and types

of relationships as well as kinship ties of involved persons. Another way is to provide

from the outset a clear and concise definition of what is meant by family.

Another, though less frequent, concern relates to difficulties associated with

categorizing companies that are influenced by two or more unrelated families. For

example, two families—Miele and Zinkann, who are descendants of unrelated

founders—own and manage Miele in Germany. Although two families influence this

company, the influence of one family balances the other. Thus, the influence of

multiple-family ownership is not necessarily additive. Given this situation, we suggest

in such circumstances that the influence of each family must be considered within any

measure that assesses family influence.

To be functional, a definition must be unambiguous and transparent in such a

way that it can be quantified. For example, Lea’s (1998) definition is very difficult to

operationalize:

BLOCK QUOTE

A business is a family business when it is an enterprise growing out of the

family's needs, built on the family's abilities, worked by its hands and minds, and

guided by its moral and spiritual values; when it is sustained by the family's

commitment, and passed down to its sons and daughters as a legacy as precious as the

family's name .

END BLOCK QUOTE

The F-PEC Scale of Family Influence 3

 Furthermore, a definition should measure what it purports to measure and assist

in providing reliable (replicable) research results.

In an early attempt to view family businesses as nonmonolithic, Shanker and

Astrachan (1996) classify definitions by degree of family involvement. Their three-tier

categorization ranges from broad (little direct family involvement), to middle (some

family involvement), to narrow (a lot of family involvement). In contrast, Klein (2000b)

prepared a modular classification in which different criteria are regarded as independent

rather than additive.

Definitions that differ only slightly make it difficult not only to compare across

investigations but also to integrate theory. Smyrnios, Tanewski, and Romano (1998)

point out that “complexities associated with arriving at a sound definition of a family

firm raised a number of methodological concerns related to sampling issues, appropriate

group comparisons, and establishing appropriate measures used to derive statistics” (p.

51). This complexity can raise confusion and call into question the credibility of family

business research (Habbershon & Williams, 1999). It is our view that a family business

definition should be clear about to which dimensions it refers. Moreover, a definition

should be transparent and unambiguous. Perhaps most important, a definition should be

modular, and its operationalization should lead to reliable and valid results.

A detailed review of definitions employed in studies reveals that there is no clear

demarcation between family and nonfamily businesses and that no single definition can

capture the distinction between the two types of entities. Artificially dichotomizing

family vs. nonfamily firms when no such clear-cut dichotomy exists creates more

problems than it attempts to solve. In this paper, we propose that there are discrete and

particular qualities or characteristics of a business that are more appropriately measured

on a continuous rather than dichotomous scale. We also suggest measures that can be

used to tap different qualities of businesses. These measures make it possible to

The F-PEC Scale of Family Influence 4

differentiate levels of family involvement. In addition, these measures provide a

framework integrating different theoretical and methodological approaches to the study

of family business.

From the One Definition Toward a Continuum of Family Business

Utilizing the “family universe bull’s-eye,” Shanker and Astrachan (1996) outline a

continuum ranging from high to low levels of family involvement. One difficulty

associated with this approach is that different aspects of family involvement are directly

found on the continuum itself. For example, Shanker and Astrachan suggest that a

business with much family involvement has at least one family member in a

management position and multiple generations work in and own the company. As this

scheme comprises three categories of family involvement, finer distinctions that could

be useful in understanding family business behavior appear without recognition.

A relevant issue, therefore, is not whether a business is family or nonfamily, but

the extent and manner of family involvement in and influence on the enterprise. In our

view, there are three important dimensions of family influence that should be

considered: power, experience, and culture. These three dimensions, or subscales,

comprise the F-PEC, an index of family influence (see appendix: The F-PEC scale).

This index enables comparisons across businesses concerning levels of family

involvement and its effects on performance as well as other business behaviors.

The F-PEC also allows researchers to utilize data derived from subscales and

total scores as independent, dependent, mediating, or moderating variables.

Interestingly, during the late 1930s, Lazarsfeld (1937, p.127f, quoted after Schnell, Hill

& Esser 1995, p.161) identified three reasons for developing a scale: functional

reduction, arbitrary numerical reduction, and pragmatic reduction. With respect to the F-

PEC, pragmatic reduction is perhaps the most important reason for its development.

The F-PEC Scale of Family Influence 5

 As well as pragmatic implications, the F-PEC will herald objectivity and

standardization of measurement across investigations. F-PEC development is based on

main themes derived from an in-depth content analysis of various definitions of family

business. Scales of the F-PEC provide an overall measure of family influence. A

discussion of the three subscales of the F-PEC follows.

The Power Dimension of Family Influence: Ownership, Governance, and

Management Participation

A family can influence a business via the extent of its ownership, governance, and

management involvement (see Figure 1). A measure should not only take these issues

into account, but also legal, political, and economic considerations associated with

different countries. For example, in the case of board structures and compositions, most

western countries, including the United States, involve a one-level board system.

Germany, Switzerland, and the Netherlands have a two-level system in which a board

member of one board (management or governance) is, by law, not permitted to be a

concurrent member of both levels of governance. The F-PEC power subscale takes into

account the percentage of family members on each board level as well as the percentage

of members who are named through family members on the management and

governance boards.

INSERT FIGURE 1 HERE

The involvement of family members as leaders of family firms has been a matter

of interest for researchers and practitioners since the early 1970s (e.g., Danco, 1975).

This interest has focused on a number of different topics, including legitimate

leadership (Kehr, 1996), performance (Monsen, 1996), principal-agent theory (Aronoff

& Ward, 1995), and governance structure (Neubauer & Lank, 1998). Although these

The F-PEC Scale of Family Influence 6

topics are important, the F-PEC is not concerned with whether a nonfamily CEO would

serve the business better, whether a family CEO will reduce control costs, or whether a

family CEO is highly motivated (Aronoff & Ward, 1995). The F-PEC power subscale

assesses the degree of overall influence or power either in the hands of family members

or in those named by the family. This level of influence via ownership, management,

and governance is, therefore, viewed as interchangeable as well as additive.

In line with this view, Klein (2000a, 2000b) integrates ownership, governance,

and management involvement of the family into a definition in which the level of

influence in another could balance a lack of influence in one of these three domains.

Although the Klein definition provides only a discrete determination (family vs.

nonfamily), it does combine several criteria into one continuum and, thus, shows a

number of precursor characteristics appropriate for the development of an index or

scale. Discussing how this continuum functions, Klein (2000a) states that “influence in

a substantial way is considered if the family either owns the complete stock or, if not,

the lack of influence in ownership is balanced through either influence through

corporate governance or influence through management” (p. 158).

Notwithstanding, Klein did not comment on the importance of indirect

influences for international comparisons. This issue is important as tax and legal

structures across national boundaries encourage different forms of ownership. In some

countries, for example, it is an advantage to own a company through other entities (e.g.,

trusts, companies, or holding companies), and understanding the actual levels of family

ownership and governance control can be difficult to decipher. For instance, it can be

difficult to assess the extent of influence of a family who owns a business through a

holding company. Faccio and Lang (2000, p. 10) take into account the indirect influence

of a stakeholder through “the product of two ownership stakes along the chain” of

owning companies or family members. An example of this ownership chain includes a

The F-PEC Scale of Family Influence 7

family that owns 100% of a holding company that itself owns 100% of the company.

Obviously, this family has 100% influences through ownership. However, a family that

owns 50% of a holding company that itself owns 50% of the stock of a company has

only a 25% influence via ownership.

Family influence through governance and management can be measured as the

proportion of family representatives who are members of the governance or

management boards. In contrast, indirect influence might mean members of a board

who are named through family members but are not family members themselves. A

family’s influence through this means, although indirect, is usually considerable. To

assess this direct influence optimally, a weighting system must be employed. In mixed

cases, the proportion of family members on the board will be added to a weighted

proportion of members.

Consider the following example, two of five board members are family, two are

nominated or elected by family members, and one is representative of a minor

nonfamily shareholder. Our weighting system suggests that this board comprises 44%

of family influence to the overall power subscale. This proportion is calculated by

aggregating 40% of family influence (i.e., two of five members are family) and 4% of

indirect influence (two of five multiplied by 0.1).

The Experience Dimension of Family Influence: Generation in Charge

This section discusses the family business experience subscale in relation to succession

and the number of family members who contribute to the business. A number of authors

(e.g., Barach & Ganitsky, 1995; Birley, 1986; Heck et al., 1999; Ward, 1987, 1988)

state that an enterprise can be viewed only as a family business when a transfer to the

next generation is intended. Other authors (e.g., Daily & Thompson, 1994) consider that

at least one generational transfer should have occurred. For others (e.g., Klein, 2000b), a

The F-PEC Scale of Family Influence 8

founder-run entity can be regarded as a specific case of a family business. Despite these

differences in viewpoints, all authors agree that each succession adds considerable

valuable business experience to the family and the company.

INSERT FIGURE 2 HERE

It could be argued that the level of experiences gained from the succession

process is greatest during the shift from first to second generations. During the first

generation of ownership, many new rituals are installed. Thus, second and subsequent

generations of ownership contribute proportionally less value to this process. As shown

in Figure 2, family business experience of succession is regarded as involving an

exponential continuum. Accordingly, dimensions involving generation of family

ownership and who is on the management and governance boards are weighted

according to a nonlinear algorithm.

The number of family members associated with the business also contributes to

the experience dimension. As a case in point, the wife of the family CEO can influence

the business in a substantial way. Posa and Messer (2001) state that “CEO spouses play

a key, even if often invisible, role in most family-controlled corporations” (p. 25).

Furthermore, discussions between owner-parents and their young adult children on

business topics can enrich the business in a substantial way.

In some families, the contribution of the young generation over time is even

more visible. One example is the Schmidt family in Germany. The youngest son of the

Schmidt family, which owns and manages a bank in Southern Germany, in 1994

founded Consors — a subsidiary dealing with online brokerage. Today, Consors is one

The F-PEC Scale of Family Influence 9

of the biggest online banks in Europe and has been listed on the Frankfurt stock

exchange since 1999. The contribution of the son to the family business by founding his

own business as a start-up in a similar field is undeniable, even given the recent

difficulties facing the Schmidt bank itself and, therefore, Consors as well. The family

gained substantial experience as a result of their son’s entrepreneurial input. Therefore,

the number of family members dedicated to the business is viewed as an important

indicator of how much experience the business receives from the family. Figure 3

shows the dimensions of the F-PEC experience subscale.

INSERT FIGURE 3 HERE

The Culture Dimension of Family Business: Family and Business Values

Gallo (2000) considers business culture an important family enterprise element.

According to his perspective, a firm can be considered a family business when family

and business share assumptions and values. Other researchers define a family firm in

terms of how the CEO, its managers, or its owners view the business. For example, it is

reasonable to assume that owners or managers who regard their enterprise as a family

business are highly likely to be attentive to issues and opinions of family members, as

well as meeting the needs of family members.

However, anchoring values in an organization takes time. Klein (1991) finds

that core values of key personnel (i.e., individuals who have led an organization for

more than 10 years) usually form part of the culture of their organization. The values of

these significant individuals can be seen embedded in internal political matters, the

ways in which conflicts are handled, and the degree of centralization vs.

decentralization. Notwithstanding, evaluating overlap of company and family values

can be difficult, as issues pertaining to definition and time need to be considered. For

The F-PEC Scale of Family Influence 10

example, the values of an organization might well be rooted in family values of a former

generation, but not necessarily manifest in the current family.

The F-PEC assesses the extent to which family and business´ values overlap, as

well as the family’s commitment to the business. According to Carlock and Ward

(2001), “the family’s commitment and vision of itself are shaped by what the family

holds as important…For these reasons, core family values are the basis for developing a

commitment to the business” (p. 35). In light of this view, families that are highly

committed to the business are highly likely to have a substantial impact on the business.

In line with Carlock and Ward (2001), commitment is viewed as involving three

principal factors: a personal belief and support of the organization’s goals and visions, a

willingness to contribute to the organization, and a desire for a relationship with the

organization. A number of items comprising the Carlock and Ward (2001) Family

Business Commitment Questionnaire are integrated into the F-PEC culture subscale(For

F-PEC scale see appendix)

INSERT FIGURE 4 HERE

The F-PEC Scale

As discussed earlier, the F-PEC comprises three subscales: power, experience, and

culture. The F-PEC measures the extent of family influence on any enterprise. In

marked contrast to previous work in this field, the F-PEC is not concerned with arriving

at a precise or all-encompassing definition of family business or with differentiating this

type of enterprise from its counterparts. However, development of a standardized

The F-PEC Scale of Family Influence 11

instrument, like the F-PEC, enables sound comparisons across investigations and use of

measures of family influence as either dependent, independent, moderating, or

mediating variables. Figure 5 shows subscales along with their dimensions making up

the F-PEC scale.

INSERT FIGURE 5 HERE

Procedures for Determining the Psychometric Properties of the F-PEC Scale.

A team of experts, including academic researchers, family business owners, and

practitioners, developed all items forming part of the F-PEC. Development of the scale

proceeds through focus group discussions and pilot testing on a number of family

business owners. Data relating to the F-PEC are analyzed utilizing principal

components and maximum likelihood factor analytic procedures and structural equation

modeling techniques. Items demonstrating ambiguity, redundancy, and lack of

discriminatory power are eliminated.

Dimensions of the F-PEC Measure. Following suggestions by Gorsuch (1983),

McDonald (1985), and Pedhazur and Pedhazur Schmelkin (1991), both factor analytic

methods are used to assess the stability, number, and simplicity of factor structures. A

cutoff score of r = .40 is considered reasonable for inclusion of a variable in

interpretation of a factor (Stevens, 1986; Lambert, Wildt, & Durand, 1991). Items that

do not meet the above-mentioned item loading criterion and those items that lack

discriminatory power are deleted.

Psychometric Properties. Internal reliability (consistency) coefficients

(Cronbach’s alpha) for the F-PEC subscales and overall scale are also determined.

The F-PEC Scale of Family Influence 12

Cronbach’s alpha assesses the degree to which items making up a factor are

intercorrelated or share similarities in their measurement of a particular construct, such

as culture.

Items that make up the three subscales of the index are then evaluated for

unidimensionality and reliability. A unidimensional factor comprises items that share a

similar trait or construct. Congeneric measurement models are produced by allowing

each item to respond to its underlying concept (Jöreskog & Sörbom, 1989). Goodness of

fit of a measure is used to assess the degree to which observed data scores are predicted

by an estimated model. Results should indicate whether items adequately fit

hypothesized models and whether items have acceptable reliabilities (Hair, Anderson,

Tatham, & Black, 1992).

External Validity. To demonstrate external validity (i.e., generalizability), the F-

PEC is tested on large sample groups (e.g., n > 500) in different countries, including the

United States, Germany, Australia, and Britain as well as in Europe. Cross-cultural

comparisons also involve subjecting the F-PEC to the rigorous statistical procedures

outlined previously.

Discussion

The F-PEC index of family influence on the business provides researchers, for the first

time, with a tested standardized instrument that allows integration of different

theoretical positions as well as comparisons of different types of data . Once the F-

PEC’s reliability and validity are demonstrated, it will encourage researchers to conduct

more international research on a solid basis, as well as encourage researchers from

outside the family business field to include family business issues in their research. The

time so far spent on definition problems might be invested in either pure research of

fundamental questions to develop a theoretical framework of family businesses and/or

The F-PEC Scale of Family Influence 13

in empirical studies—both cross-national and an in-depth understanding of special

items. In the long run, international studies might lead to a better understanding of

national peculiarity, thereby enriching the discussion of researchers, consultants, and

family business members so that they can learn from each other and from other

nationalities.

We also hope that practitioners will regain trust in research results, which might

help encourage and finance further research. Questions concerning family businesses

that consultants, family business members, and companies dealing with family

businesses raise could lead to direct projects that don’t depend on first having to define

family business. At the same time, it would be possible to compare the obtained data

with already-existing data that were gained on the same basis.

Apart from research implications, the F-PEC will help teachers and scholars of

the family business field to understand the possible ways through which family

members and families as an entity gain, loose, or maintain influence on their business.

This will help in the development of agendas for both university courses and executive

courses, emphasizing the management of this family influence on the business in a way

that balances family and business needs. Such knowledge helps both the family and the

business to perform even better.

We believe that the F-PEC is only the beginning and will help to establish the

family business as an independent research field attracting high-standard researchers

and dedicated practitioners.

The F-PEC Scale of Family Influence 14

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The F-PEC Scale of Family Influence 18

 Appendix. The F-PEC Scale

Definitions

• Family is defined as a group of persons including those who are either offspring of a

couple (no matter what generation) and their in-laws as well as their legally adopted

children.

• Ownership means ownership of stock or company capital. When the percentage of voting

rights differs from percentage of ownership, please indicate voting rights.

• Management board refers to the company board that manages or runs an entity(ies).

• Persons named through family members represent the ideas, goals, and values of the

family.

© Dr. Joseph Astrachan © Dr. Sabine Klein © Dr. Kosmas Smyrnios

Kennesaw State University Trier University School of Marketing, RMIT, Melbourne
 Part 1: The Power Subscale

1. Please indicate the proportion of share ownership held by family and nonfamily

members:

(a) Family _______________ %

(b) Nonfamily _______________ %

2. Are shares held in a holding company or similar entity (e.g., trust)? 1. ‰ Yes 2. ‰ No

If YES, please indicate the proportion of ownership:

(a) Main company owned by: (i) direct family ownership: _____%

(ii) direct

nonfamily:_____%ownership:_______%

(iii) holding company:_______%

(b) Holding company owned by: (i) family ownership:______%

(ii) nonfamily ownership:__%

(iii) 2nd holding company:__%

(c) 2nd holding company owned by: (i) ______ family ownership:_____%

3. Does the business have a governance board? 1. ‰ Yes 2. ‰ No

If YES:

(a) How many board members does it comprise? ______________ members

(b) How many board members are family? _________ family members

(c) How many nonfamily (external) members

 nominated by the family are on the board? ______ nonfamily members

4. Does the business have a management board? 1. ‰ Yes 2. ‰ No

If YES:

(a) How many persons does it comprise? _______________ members

(b) How many management board members are family? family members

(c) How many nonfamily board members are chosen

through them? _______ nonfamily member

Definitions

• The founding generation is viewed as the first generation.

• Active family members involve those family members who contribute substantially to the

business. These individuals might hold official positions in the business as shareholders,

board members, or employees.

Part 2: The Experience Subscale

1. Which generation owns the company? ____________ generation

2. Which generation(s) manage(s) the company? ____________ generation

3. What generation is active on the governance board? ____________ generation

4. How many family members participate actively in the

business? ____________ members

5. How many family members do not participate actively

in the business but are interested? _____________members

6. How many family members are not (yet) interested at all? _____________members

Part 3: The Culture Subscale

Please rate the extent to which:

1. Your family has influence on your business. Not at all To a large extent

1….…….2….…….3…….….4………..5
2. Your family members share similar values. Not at all To a large extent

1….…….2….…….3…….….4………..5

3. Your family and business share similar values. Not at all To a large extent

1….…….2….…….3…….….4………..5
Please rate the extent to which you agree with the

following statements:

4. Our family members are willing to put in a great deal

of effort beyond that normally expected to help the Strongly disagree Strongly Agree

1….…….2….…….3…….….4………..5
family business be successful.

5. We support the family business in discussions with Strongly disagree Strongly Agree

friends, employees, and other family members. 1….…….2….…….3…….….4………..5

6. We feel loyalty to the family business. Strongly disagree Strongly Agree

1….…….2….…….3…….….4………..5

7. We find that our values are compatible with those of Strongly disagree Strongly Agree

the business. 1….…….2….…….3…….….4………..5

8. We are proud to tell others that we are part of the Strongly disagree Strongly Agree

family business. 1….…….2….…….3…….….4………..5

9. There is so much to be gained by participating with Strongly disagree Strongly Agree

the family business on a long-term basis. 1….…….2….…….3…….….4………..5

10. We agree with the family business goals, plans, and Strongly disagree Strongly Agree

policies. 1….…….2….…….3…….….4………..5

11. We really care about the fate of the family business. Strongly disagree Strongly Agree

1….…….2….…….3…….….4………..5

12. Deciding to be involved with the family business has Strongly disagree Strongly Agree

a positive influence on my life. 1….…….2….…….3…….….4………..5

13. I understand and support my family´s decisions Strongly disagree Strongly Agree

regarding the future of the family business. 1….…….2….…….3…….….4………..5

 We thank you very much for your support!

Joseph H. Astrachan is Wachovia Chair of Family Business at Kennesaw State University.

Sabine B. Klein, Lehrbeauftragte Trier University, ProMit, Department Mittelstandökonomie.
Kosmas X. Smyrnios is foundation director of AXA Australia Family Business Research Unit,
Department of Accounting & Finance, Faculty of Business and Economics, Monash University.

We would like to thank the participants of the 2000 (Amsterdam, The Netherlands) and 2001
(INSEAD, Fontainebleau) International Family Enterprise Research Academy for their
valuable, provocative, and challenging thoughts and comments.

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