Challenges in Using the Concept of SEW Utility of the Concept

1042-2587
© 2014 Baylor University

E T&P

Deconstructing
Socioemotional Wealth
Danny Miller
Isabelle Le Breton-Miller

There have appeared of late numerous important articles elaborating on and researching the
concept of socioemotional wealth, within the last year in Entrepreneurship Theory and
Practice, others published in journals ranging from Administrative Science Quarterly to
Family Business Review. Given the increasing popularity and generality of the concept, it is
perhaps worth revisiting it to assess its potential for enhancing our understanding of family
firms. We shall examine the socioemotional wealth concept and the challenges it poses for
researchers, and propose some conceptual and methodological notions for increasing
its utility.

The Notion of Socioemotional Wealth (SEW)
Gómez-Mejía, Haynes, Nuñez-Nickel, Jacobson, and Moyano-Fuentes (2007) have

labeled the noneconomic utilities family members receive from their businesses as
SEW or affective endowments. Thus, family members are said to attempt to manage
their businesses not to maximize financial returns but to preserve or increase the
socioemotional endowments they derive from the business (Gómez-Mejía, Cruz, Berrone,
& DeCastro, 2011). The SEW perspective is founded on behavioral agency theory
(Wiseman & Gomez-Mejia, 1998), which argues that preferences are shaped by existing
endowments. Where major family owners or managers possess such endowments in the
form of a firm they control, they may work against the interests of nonfamily owners—
particularly where the endowment they are attempting to preserve is of a socioemotional
nature—for example, preserving family control of the firm by avoiding profitable investments and initiatives that would threaten such control.1

Please send correspondence to: Isabelle Le Breton-Miller, tel.: 1-514-340-7315; email: isabelle.lebreton@
hec.ca or lebreton@generation.net and to Danny Miller at danny.miller@hec.ca.
1. According to Adam Smith, wealth is the annual produce of the land and labor of a society. Wealth in the
form of money or talent can be stored, earns and produces something material, and is fungible. It evokes
saving and reaping. Although SEW is often expressed as an endowment—it tends more toward reaping,
typically in the form of the enjoyment or rent that obtains from the possession or control of a business. Here,
“spending” occurs by indulging one’s preferences—e.g., having a family member serve as chief executive
officer, or providing gifts to the children from the business. Thus, socioemotional benefit may be as appropriate a term as wealth or endowment.

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DOI: 10.1111/etap.12111

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Challenges in Using the Concept of SEW
Utility of the Concept
Certainly, SEW proponents are correct in saying that family firms are motivated by
things other than, and perhaps in conflict with, financial objectives. But an abundance
of prior research has already established that. Indeed, there is a longstanding legacy of
concepts and research that has acknowledged the importance to family firms of noneconomic, family-centric motives, such that family members are said to exploit the business
to satisfy social obligations and emotional preferences (e.g., Beckhard & Dyer, 1983;
Daily & Dollinger, 1992; Kets de Vries, 1993; Taguiri & Davis, 1996; Ward, 1997). These
priorities include being accommodating to relatives by giving them privileged access to
the firm and its resources (Bertrand & Schoar, 2006; Kets de Vries & Miller, 1984; Kets
de Vries, 1993; Morck, Wolfenzon, & Yeung, 2005; Ward, 1997).
Although there is utility in incorporating multiple differentiating priorities for family
firms—or, more accurately, family members in family firms—under “one SEW umbrella,”
that is true where the category helps to link causes with their effects. As we shall see, this
remains a challenge, and researchers might do well to revisit the earlier socioemotional

distinctions in the literature to be able to explore in greater depth and with more predictive
consequences the different varieties of SEW.

Diverse Types and Sources of SEW
There are many possible types of social and affective endowment that accrue to family
members as a result of controlling a business. These include the ability to enhance
family reputation and social status in the community via firm contributions, to use firm
financial resources to benefit one’s family or children, to provide interesting career
opportunities for family members, and to satisfy family egos. Moreover, as Gómez-Mejía
et al. (2011) summarize, there are a great many potential sources of these SEW
priorities—patriarchal duty, altruism, pride, desire for family harmony, political power,
status, and control over wealth.
Not only do SEW priorities vary among firms and even family members within a firm,
they also may vary across the life cycle of a family in its firm: founders may desire a robust
business to pass on to later generations, whereas later generations may wish to benefit
from the wealth and community status wrought by their family firm (Le Breton-Miller
& Miller, 2013b; Lubatkin, Schulze, Ling, & Dino, 2005). It is also likely that SEW
preferences can vary significantly among family members, with, for example, family
executives incorporating an economic agenda and family owners not involved in managing the business given to more parochial SEW-related motivations.

Diverse SEW Outcomes
As a consequence of this diversity of motives, there are also a great number of
possible outcomes: desire for control over a business and guaranteed security for later
generations may induce risk aversion and even dysfunctional conservatism (Schulze,
Lubatkin, & Dino, 2003; Schulze, Lubatkin, Dino, & Buchholtz, 2001). Nepotism may
lead to incompetent management (Mehrotra, Morck, Shim, & Wiwattanakang, 2011;
Volpin, 2002). Entrenchment of family executives may cause strategic stagnation
(Bertrand & Schoar, 2006; Bloom & Van Reenen, 2007). By contrast, care for reputation
in the community and thus solicitous treatment of stakeholders (Cennamo, Berrone, Cruz,
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& Gomez-Mejia, 2012; Kellermanns, Eddleston, & Zellweger, 2012; Miller & Le BretonMiller, 2005) may create loyal partners who can actually help enhance financial performance (Berrone, Cruz, Gómez-Mejía, & Larraza-Kintana, 2010). Indeed, even the nature
of the environment can determine when these SEW motives and outcomes will help or
hurt a firm’s market or financial performance. For example, conservatism may be useful
in more stable industries but harmful in turbulent ones (Naldi, Cennamo, Corbetta, &
Gomez-Mejia, 2013).

Problems Connecting Cause and Effect

Sometimes outcomes attributed to the preservation of family SEW may be caused by
factors that have little to do with those intentions. For example, limiting diversification,
internationalization, risk taking, and debt may be motivated not by SEW concerns, but the
quest for greater short-term financial returns (Gómez-Mejía, Makri, Hoskisson, Sirmon,
& Campbell, 2010; Gómez-Mejía, Makri, & Larraza-Kintana, 2010). So can collaboration
with external stakeholders (Freeman, 2010). One can only attribute these outcomes to
SEW concerns where there is additional evidence as to the actual motivations behind
the behavior.
One challenge in linking cause and effect relates to teasing out financial versus
nonfinancial (SEW) motivations. A firm’s contributions to its community may bring both
social and financial returns. Similarly, excellent financial performance may bring prestige
to a family and satisfy its need for social status. Indeed, family motives may be mixed
among financial and nonfinancial motivations: the desire to pass on a firm to later
generations may encourage careful stewardship of the business and an effort to enhance its
competitive strength. Again, the connection between motives and rewards, and among
them each, becomes difficult to disentangle and will benefit from looking behind the
numbers to examine motives more directly.

Not Specific to Family Firms
The generic notion of SEW preservation may not be specific to family firms. For

example, entrepreneurs may favor rapid growth to preserve their social status and identity
as members of the breed and because venturing provides emotional satisfaction (Miller,
Le Breton-Miller, & Lester, 2011). Chief executive officers of large firms may favor
stable earnings to enhance their reputation among analysts as skilled managers (Healy
& Wahlen, 1999). These motivations too have both emotional and social components and
they are related to career and reputational endowments; moreover, some of the outcomes
are similar to those favored by family owners. Again, the challenge to family business
scholars will be to relate SEW priorities directly to specific family-centric concerns.

Not Exhaustive of Family Firm Priorities
The term socioemotional, although very broad, does impose limitations that, for some
family firms, may actually be too restrictive. For example, there may be family-related
political and cultural benefits, not typically encompassed in current SEW discussions, that
are more informative as proximate causes of behavior. For example, a family may strive
to influence government policy via its political contributions—for purposes of acquiring political power. Or it may be beneficent to its community because that is a strong
institutional value in, or pressure from, the regional culture. Indeed, “institutional logics”
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of religion, the state, the market, and the community may all drive family preferences
and behavior in family firms (Thornton, Ocasio, & Lounsbury, 2012). Their study may add
precision and scope to discussions of family motives.

Indirect Measures
In most previous research, SEW preferences are not assessed directly. They are very
rarely measured by stated family motivations but instead by examining governance
variables of family involvement in ownership and management, coupled with generic
outcomes such as risk aversion (Gómez-Mejía et al., 2007), a lack of innovation
(Gómez-Mejía et al., 2011), and sustainability practices (Berrone et al., 2010), etc. It is
then inferred that the sources of these practices were SEW preferences. As noted, this
is a hazardous inference, as these outcomes may well be linked to conditions and preferences having little to do with family SEW priorities.
In short, the very diversity of the nature of SEW priorities, the tenuous linkages
between cause and effect, and the nonspecificity of some outcomes to family concerns,
demand that we be precise in specifying and examining the locus, drivers and causal
implications of its various components. Because of its aggregate nature, precision will be
required to refine and make better use of the concept. Moreover, the temptation to always
infer SEW motivations from family firm outcomes not obviously attributable short-term
financial incentives does little to advance our understanding of behavior.2 What is required
is fine-grained information about the preferences, motivations, and social behavior of

family firm owners and executives and the specific outcomes.

Modest Proposals for Moving Forward
Distinguishing Restricted Versus Extended SEW Priorities
Certainly, the notion of SEW does resonate with many of the priorities of family
business owners. The challenge is to distinguish among the varieties of these priorities, to
characterize them more precisely, encompass their diversity, and link them more closely
to outcomes for the firm and its nonfamily stakeholders.3
As an initial step, it may be useful to consider a basic typology that divides SEW
priorities into those which are of narrow and short-term benefit to the family, and those
that are of more enduring benefit to a broader range of stakeholders (see Table 1). This
tentative and still crude dichotomy also helps to link different SEW priorities to divergent
theoretical perspectives on family firms.
Our distinction is between what we shall call “restricted” and “extended” SEW
priorities (Le Breton-Miller & Miller, 2013a). In essence, the former refer to priorities that
2. The situation recalls that of the early years of institutional theory. Tolbert and Zucker (1983) argued that
civic governments that were late adopters of an administrative innovation did so for reasons unrelated to
function and thus ascribed them to the “institutional” concern of social legitimacy. However, there was little
direct evidence to support that in their study, nor was there a precise description of the nature of the
institutional motivations. In the same way, some SEW studies ascribe behavior that is not positively related to

financial returns to family SEW objectives without measuring if that is the case. Here too, more fine-grained
analyses of the sources of behavior are called for.
3. See also Berrone, Cruz, and Gomez-Mejia (2012) who have distinguished among SEW priorities—
including the desire for control of the firm, family identification with the business, preserving family ties,
emotional attachment, and dynastic succession.

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Table 1
Contrasting Restricted Versus Extended SEW Priorities
Restricted SEW
Typical SEW priorities
Focal stakeholders

Permanent job security and access to business
resources for all current family members
Immediate family

Related theories
Governance
arrangements

Agency and behavioral agency theory, family altruism
Family dominated leadership and
governance—regardless of capability

Strategic outcomes

Strategic conservatism or stagnation, sparse
investment in the business, risk aversion, family
extraction of funds from business
Inferior growth and longevity
Nepotism, entrenchment, family control of firm

Commercial outcomes
SEW outcomes

Extended SEW

Long-term well-being of motivated later generations
able and willing to nurture the firm
The family over time, the business and all its
stakeholders
Stewardship theory, stakeholder theory, sustainability
Competent, motivated family members only; balance
between family and nonfamily executives and
directors
Generous investment in products and processes;
continuous reinvestment in the business and its
renewal
Superior growth and longevity
Family pride in offerings and in relations with
stakeholders and the community

Note: Adapted from Le Breton-Miller & Miller (2013a).
SEW, socioemotional wealth.

are highly family centric and often run counter to the interests of nonfamily stakeholders
and the firm, at least in the long run. It is such priorities that are referred to by scholars
of family altruism, agency conflicts among owners and between owners and managers,
and behavioral agency theory (Lubatkin et al., 2005; Morck et al., 2005; Schulze et al.,
2001, 2003; Wiseman & Gomez-Mejia, 1998). These priorities may include having family
members dominate management and board membership regardless of qualifications, using
business resources to resolve family disputes, engaging in unrequited altruism or nepotism, and entrenching incompetent family leaders. Related outcomes may take the form of
hyper-conservative strategies to maintain family control, inadequate innovation because
family executives lack managerial ability, and restricted opportunities for career advancement for nonfamily managers. Although these outcomes may satisfy family socioemotional objectives, they can hobble firm performance and shortchange nonfamily
stakeholders. Indeed, because of their ultimate harm to the business, the benefits that
accrue to the family often may be short term, as rewards available from the firm will
generally decrease with its decline.
There may however be positive outcomes from some very different types of family
SEW priorities—which may be called extended. Although based on family preferences, these encompass benefits that go beyond the family. They are referenced by
scholars advocating stewardship, stakeholder, and sustainability perspectives of family
firms (Allouche & Amann, 1998; Arrègle, Hitt, Sirmon, & Véry, 2007; Miller, Le
Breton-Miller, & Scholnick, 2008). Priorities include investing in a firm to enhance a
family’s reputation with stakeholders, forming sustaining relationships with partners
to increase the chances of firm survival, and investing in the community to ensure an
abundance of goodwill toward the family and its business (Cennamo et al., 2012). In this
case, the rewards accrue not merely to the family, but to other stakeholders as well. And
the benefits to the business may be of more of a long-term nature.
It might be useful for researchers attempting to add precision to the SEW literature to
begin to make the above types of distinctions in their empirical and conceptual work.
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Finer-Grained Measures and Probes
More direct, multifaceted, and finer-grained measures of SEW priorities also would
be useful. Moreover, it would be preferable to administer instruments incorporating such
measures to different family and nonfamily owners, directors, and executives of a given
company to better identify the most critical distinctions among key actors.
In short, it will be useful for scholars of SEW to be sharper in their characterizations
of its nature, sources, and outcomes, and to probe more directly the motives of the family
members who play active roles in family businesses.

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Danny Miller is Research Professor at HEC Montreal and Chair in Strategy and Family Enterprise at
University of Alberta.
Isabelle Le Breton-Miller is Chair of Succession and Family Enterprise, HEC Montreal and Senior Research
Fellow, University of Alberta.

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