Heterogeneity in family firms: contextualising the adoption of family governance mechanisms

Abstract

PurposeThis research is aimed to better understand what characteristics of family firms create a context in which family governance systems are more frequently adopted.Design/methodology/approachWe analyse a sample of 490 Spanish family businesses using cluster analysis, and we identify four different types of family businesses whose characteristics are associated to the adoption of different family governance systems, i.e. family councils and family protocols. The comparison between clusters of the baseline parameters was performed using one-way analysis of variance (ANOVA) for parametric variables, the χ2 test for parametric variables and Kruskal-Wallis for nonparametric variables. By conducting between-profile analysis of covariance (ANCOVA), we tested for differences in the dependent variables (i.e. the existence of family councils and/or existence of family protocols) between the clusters, using cluster membership as the independent variable.FindingsTaking into account the characteristics of family firms in terms of ownership structure, management involvement, and family and organizational complexity, we identify four different contexts that create different communication needs and are related to the use of different family governance mechanisms. We characterize the different contexts or types of family firms as: founder-centric, protective, consensual and business-evolved. Our findings show that family protocols are associated to contexts with high family involvement in management and family complexity, while family councils are more frequent when there is a separation of managerial and ownership roles and there is a high organizational and family complexity.Research limitations/implicationsThe study highlights the value of social systems theory in order to explain the association between the characteristics of different firm types and contexts, and the use of family councils and family protocols to govern the relationship between the owner family and the business.Practical implicationsFamily governance mechanisms are widely recommended by practitioners and scholars. However, they are usually adopted only by a small percentage of family firms. This study helps to better understand what family governance systems may be more appropriate in different contexts and relativize the necessity of these governance mechanisms in function of the communication needs created within each context.Social implicationsThe improvement of family governance mechanisms helps to increase the likelihood of survival and durability of family firms. These firms contribute to more than 60% of employment in most developed countries. Consequently, good governance in family firms has social implications in terms of labour conditions and stability.Originality/valueMost family firms don't use family protocols or family councils to govern the relationship between the owner family and the firm. However, little is known about the reasons for this lack of structuration of the family-firm relationship. Using social systems theory, our research contributes to better understand the conditions in which business families are more prone to use structured forms to manage this relationship, as well as the reasons that may be constraining their adoption.