Applying the four-eyes principle to management decisions in the manufacturing sector

Abstract

Purpose – This paper aims to explore the application of the four-eyes principle (4EP) to management decisions in large family firms in the manufacturing sector, a heretofore neglected area of business and management research. Design/methodology/approach – A theoretical analysis was first conducted of the 4EP in general and its application in family firms based on agency and stewardship theories. A qualitative field study of 15 large Austrian firms from the manufacturing sector with various degrees of family involvement was then conducted to explore how the 4EP is applied in these firms. Findings – From the theoretical analysis, it can be concluded that the 4EP may generally serve as a mechanism to limit agency conflicts. Due to a theoretically lower level of agency conflicts in family firms than in non-family firms, a lower application of the 4EP in family firms can be expected. However, the field study shows that large family firms also regularly adopt the 4EP and that family-managed firms demonstrate a more flexible and opportunistic usage of the 4EP, limiting both its associated downsides and advantages. The present paper further shows that such flexible 4EP usage in family-managed firms may increase their abilities to make quick business decisions and to display high levels of flexibility; however, it may also increase the risk of making suboptimal decisions and experiencing unfavorable managerial behavior as firms grow in size and international activity. Originality/value – This is the first paper to analyze the application of the 4EP in large family firms. Six propositions and a preliminary model of the 4EP in family firms are developed in the paper, which may lead to further research on the practical applications of the 4EP.