A Classification Scheme for Family Firms: From Family Values to Effective Governance to Firm Performance

Abstract

It is not news anymore that a large majority of business organizations in the world are family firms. For researchers to build cumulative knowledge and for practitioners to know which of the research findings apply to their family firms, it is important to find effective ways to classify these ubiquitous firms. Drawing upon stakeholder theory and the classic three-circle model of family firms, we develop a broad-based classification system for these firms, based on the extent of family involvement in business. This classification can be used to distinguish family firms from other organizational forms, as well as amongst different types of family firms. Further, we argue that performance in different types of family firm is likely to be dependent on a fit between the guiding values of a family and the governance structures in place. Three case studies help us to bring these ideas to life, leading us into a discussion of implications for research and practice.