Family Firm Governance Research Articles

The Potential Downside of Having Non-Family Board Members

It's been generally accepted that family firms benefit from the perspectives of outsiders on the board of directors. Outsiders can bring new knowledge and objectiveness to family firm governance. But our survey of 561 small- and medium-sized Belgian firms showed a potential downside: the presence of outsiders can be detrimental if CEOs are more reluctant to talk about finances, market position, strategy and efficiency with the entire board. This was especially true at companies where the board met infrequently and where the CEO wanted to keep tight control over operations and the flow of information. The unhappy result: the board became disengaged, and firm performance suffered.

Impact of Institutional Overlap on Family Firm Governance: An Institutionalist-Agency Perspective

This study examines how institutional overlap of business and family influences the use of governance in family firms. Due to institutional overlap, family firms pursue business-centered economic (BCE) as well as family-centered noneconomic (FCNE) preferences. Drawing on actor-centered institutionalist framework and agency theory, we argue that owing to this overlap, formal family governance is needed to mitigate FCNE goal conflicts between family shareholders and family managers; and formal family governance and board of directors are complementary mechanisms. Based on a 26-country survey of 960 family firms, we find that the use of formal family governance is determined by the extent business decisions take FCNE goals into consideration, agency relations between family shareholders and family managers, and board characteristics (number and ratio of family board and board activeness). These findings lead us to conclude that formal family governance is actually a form of corporate governance mechanism. This study contributes to a social theory of agency and suggest a way for corporate governance literature to bridge macro vs. micro and economic vs. social divides.

Do Management Training Grounds Reduce Internal Auditor Objectivity and External Auditor Reliance? The Influence of Family Firms

We test competing theoretical perspectives of family firm governance in two separate studies by investigating whether family firm control moderates the detrimental effect of a management training ground (MTG) on internal auditor objectivity and on the external auditor’s decision to rely on the internal audit function (IAF). In Study 1, we assess the objectivity of internal auditors working under an IAF that serves as a MTG or non-MTG and located in a family or non-family firm. A key result of Study 1 is the mitigating role of family firm control, as we find that the objectivity of internal auditors is reduced when the IAF serves as a MTG but only in non-family firms. When the IAF is located in a family-controlled firm, the objectivity of internal auditors is unaffected by the opportunity to be promoted into management positions outside of the IAF. In Study 2, we utilize a controlled laboratory experiment with experienced Big 4 auditors as participants and examine their decision to rely on an IAF when it serves as a MTG. Our analyses indicate that external auditors reduce their reliance on non-family firm IAFs that are also MTGs and their decision is fully mediated by the perceived objectivity of non-family firm internal auditors. In contrast, external auditors’ reliance on family firm IAFs and their perceptions of internal auditor objectivity are unaffected under a MTG regime. The results of Studies 1 and 2 provide support for the alignment perspective of family firms.

The adoption of governance mechanisms in family businesses: an institutional lens

PurposeDespite agreement on the importance of adopting governance structures for developing competitive advantage, we still know little about why or how governance mechanisms are adopted in the first place. We also acknowledge that family businesses with formal governance mechanisms in place still resort to informal means to make decisions, and we lack knowledge about why certain governance mechanisms are sometimes, but not always, effective and functional. Given these research gaps, and drawing on institutional theory, we aim to explore: How are governance structures adopted and developed in family firms? Once adopted, how do family businesses perceive these governance structures?Design/methodology/approachUsing Mokken Scale Analysis, a method suitable to uncover patterns/sequences of adoption/acquisition over time, we analyze a dataset of 1,488 Spanish family firms to explore if there is a specific pattern in the implementation of governance structures. We complement the analysis with descriptive data about perceived usefulness of such structures.FindingsOur findings highlight two important issues. Family businesses follow a specific process implementing first business governance (board of directors, then executive committee), followed by family governance (family council then family constitution). We suggest they do so in response to institutional pressures, given the exposure they have to business practices, and their need to appear legitimate. Despite formal adoption of governance structures, family businesses do not necessarily consider them useful. We suggest that their perception about the usefulness of the implemented governance structures may lead to their ceremonial adoption, resulting in a gap between the implementation and functionality of such structures.Research limitations/implicationsOur article contributes to the family business literature by bringing novel insights about implementation of governance structures. We take a step back to explain why these governance mechanisms were adopted in the first place. Using institutional theory we enrich governance and family business literatures, by offering a lens that explains why family businesses follow a specific process in adopting governance structures. We also offer a plausible explanation as to why governance structures are ineffective in achieving their theorized role in the context of family businesses, based on the family's perception of the unusefulness of such structures, and the concept of ceremonial adoption.Practical implicationsThere is no single recipe that can serve the multiple needs of different family businesses. This indicates that family businesses may need diverse levels of development and order when setting up their governance structures. Accordingly, this study constitutes an important point of demarcation for practitioners interested in examining the effectiveness of governance structures in family firms. We show that an important pre-requisite for examining the effectiveness of governance structures is to start by investigating whether these structures are actually being used or are only adopted ceremonially.Originality/valueOur paper expands current knowledge on governance in family firms by taking a step back hinting at why are governance structures adopted in the first place. Focusing on how governance is implemented in terms of sequence is novel and relevant for researcher and practitioners to understand how this process unfolds. Our study uses institutional theory, which is a strong theory to support the results. Our paper also uses a novel method to study governance structures in family firms.

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

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.

Corporate governance in the largest family firms in Latin America

PurposeThe aim of this study is to explore and understand corporate governance patterns in family firms across Latin America. This is in response to several calls in the academic literature urging for more empirical studies in corporate governance in developing regions.Design/methodology/approachFollowing a configurative perspective, a hierarchical cluster analysis is applied to a sample of the 155 largest Latin American family firms.FindingsThe authors identify three main corporate governance configurations across Latin American countries. First, the exported governance model resembles many characteristics of Anglo-American and Continental Europe governance patterns of public listed control, having independence from the board of directors, and mainly hiring non-family management. Second, the super-familial governance model describes private ownership where one or multiple families control both the board of directors and the top-management team. Finally, the hybrid governance model is the largest cluster identified in the sample and combines governance characteristics of both of the foregoing configurations. This configuration exhibits ownership structured through public offerings of shares combined with leadership of the board of directors by a family member as well as moderate family influence on the board and management.Originality/valueThis is the first study to investigate corporate governance in the largest listed and privately-owned family firms in Latin America. The article extends the conversation on family firm heterogeneity and contributes to the configurative approach in the family business field by offering a cross-country perspective and identifying meaningful taxonomies that are applicable beyond national boundaries.

Board chairs and R&D investment: Evidence from Chinese family-controlled firms

This study extends family firm governance research by highlighting the role of board chairs in shaping research and development (R&D) investment decisions. We argue that family firms with family members as board chairs (i.e., family chairs) make more intensive R&D investment than family firms without family chairs, because family chairs enable family owners to have direct control over firms, making these owners less concerned about potential loss of socioemotional wealth. We identify two boundary conditions—public visibility of family owners, and sales growth rate relative to social aspiration levels—that shape the influence of family chairs on R&D intensity. Our findings from 1471 Chinese family-controlled firms lend support to our theoretical arguments.

Corporate Governance and Financial Features of Portuguese Family Firms

This study analyses whether corporate governance and financial features of private family firms are different from private non-family firms and discusses the role of private family firms in regional economic development. The evidence is drawn from a database of Portuguese private family owner-managed firms in order to determine the differences in the management and experiences of venture capital and other financing options. The main results demonstrated that family firms have significantly lower ratios of leverage, are less interested in venture capital, have much more experience in management and are less likely to be female than those in non-family firms. Our results indicate that the financial development of Portuguese private family firms is also consistent with the moderate tenet of family firms which could hamper their business growth and demonstrate that corporate governance features assist the family identity and the ability to exert family influence.

Socioemotional Wealth, Corporate Governance and Dividend Payout Decisions in Family Firms

Si l’essentiel de la littérature financière sur la politique des dividendes a porté sur les entreprises managériales (Isakov & Weisskopf, 2013), la plupart des entreprises dans le monde sont contrôlées par des actionnaires majoritaires (Faccio & Lang, 2002) dont les préférences sont non négligeables dans le cadre des décisions de distribution des dividendes (DeAngelo, DeAngelo, & Skinner, 2007). Or, sachant que le type d’actionnariat le plus courant de par le monde est celui familial (Isakov & Weisskopf, 2013), la prise en compte des caractéristiques spécifiques des entreprises familiales aiderait à comprendre leur comportement en matière de distribution des dividendes. Or, il ressort des recherches existantes que les décisions stratégiques et financières des entreprises familiales peuvent être motivées par des considérations socio-émotionnelles et que ces décisions n’obéissent pas nécessairement à une logique économique (Gomez-Mejia, Makri, & Kintana, 2010 ; Berrone, Cruz, & Gomez-Mejia, 2012).Aussi, l’objectif de cette recherche est-il de contribuer à la littérature sur la distribution des dividendes dans les entreprises familiales (Charlier & Du Boys, 2011 ; González, Guzmán, Pombo, & Trujillo, 2014 ; Isakov & Weisskopf, 2015) en se concentrant sur l’effet de l’implication familiale sur leur politique de dividendes. Plus précisément, l’étude cherche à expliquer comment la richesse socio-émotionnelle (RSE) des entreprises familiales, et plus précisément la volonté de la famille propriétaire de garder le contrôle et l’influence sur l’entreprise, influence-t-elle les décisions de distribution de dividendes.Sur la base d’un échantillon de 28 entreprises tunisiennes cotées en bourse pour la période (2007-2014), nos résultats montrent, d’abord, que les entreprises familiales distribuent moins de dividendes que les entreprises non familiales. Plus précisément, nous observons que la préservation du contrôle familial grâce à une forte implication patrimoniale et managériale de la part de la famille-actionnaire a un effet négatif sur le versement des dividendes dans les entreprises familiales. Cette recherche s’intéresse également au rôle joué par les mécanismes de gouvernance dans la réduction des effets négatifs de la RSE sur les dividendes versés par les entreprises familiales. Si les caractéristiques du conseil d’administration semblent n’avoir aucun effet sur le versement des dividendes dans les entreprises familiales cotées en Tunisie, nos résultats montrent que lorsqu’un deuxième actionnaire non familial détient une part significative du capital, les distributions de dividendes des entreprises familiales sont amoindries.

HRM practices and effectiveness: a comparison of US Hispanic and non-Hispanic family firms

PurposeEffective use of human resources is important for the profitability and governance of family firms. In a study of the human resource management (HRM) practices of US Hispanic family firms, the purpose of this paper is to discuss the implications of agency and stewardship governance.Design/methodology/approachTo better understand HRM practices in US Hispanic family firms, the authors present findings from 169 US firms to hypothesize the extent of HRM development in Hispanic family firms (n=70) vs non-Hispanic family firms (n=99).FindingsResults indicated that HRM practices in Hispanic family firms are less structured than those of non-Hispanic family firms; however, when Hispanic family firms effectively use HRM practices, they will have greater financial success.Originality/valueTherefore, the results suggest that Hispanic family firm leaders display relatively low agency governance and high stewardship governance.

At the intersection of corporate governance and performance in family business settings: Extant knowledge and future research

AbstractDespite the proliferation of research on governance and performance of family firms over the past decades, the extant empirical evidence remains inconclusive. Acknowledging multiple sources of family firm variation, scholars started explaining the observed differences in governance structures and performance outcomes by taking into consideration the heterogeneity among family firms. In this paper, we undertake a review of the literature at the intersection of governance and performance in family firms to elucidate (a) the role of various governance attributes as performance drivers; and (b) the variability of governance effects across different performance indicators. By taking stock of what is already known and discussing avenues for further investigation, we seek to contribute to a more fine‐grained understanding of the intricate governance–performance relationship in light of the heterogeneous nature of family firms. The key priorities for future inquiry consist in: the identification of missing mediating and moderating variables; the inclusion of currently underexplored governance determinants of family firm performance; and the analysis of complementarity and substitution effects among multiple attributes of monitoring and their changing dynamics over time to secure an optimal governance–performance alignment in family firms.

Perspectivas da Pesquisa em Governança de Empresas Familiares no Brasil

Resumo Este artigo apresenta as perspectivas da pesquisa em Governança de Empresas Familiares no Brasil, resultantes da chamada desta edição especial da RAC endereçada ao tema. Os dois artigos tratam de temas relevantes no debate acadêmico, a saber: a necessidade de um arcabouço teórico para a avaliação de processos decisórios estratégicos de empresas familiares; e a importância da diversidade de gênero nos conselhos de administração destas empresas. As proposições e evidências elencadas nos dois estudos, relativas aos construtos e variáveis que apresentaram consistência teórica ou estatística, abrem uma nova frente de pesquisa sobre o tema no Brasil, relacionada à conciliação da heterogeneidade da composição dos Conselhos de Administração com a criação de valor em Empresas Familiares.

Importance of dynamic managerial capabilities on the performance of small family businesses

This research aims to determine how an entrepreneurial chief executive officer’s (ECEO) level of dynamic managerial capabilities (DMCs) influences the performance of small family firms, as well as family firm governance structure moderates this relationship. Additionally, this paper offers insights into one antecedent of ECEOs’ DMCs, namely managerial human capital. A total of 213 observations were obtained from ECEOs who have founded and operate a minimum of one small family firm in Mexico. After testing the hypotheses using a structural equation model, a positive relationship was found between the level of an ECEO’s DMC and family firm performance. It was further observed that family governance structure in the firm could positively moderate ECEO DMCs’s effect on firm performance, where family governance structure was calculated as the number of family members that work in the family firm independently, formally, or informally, as well as whether they work full-time or part-time. Overall, the results indicate that in small family firms, the ability to change and adapt to create a sustainable competitive advantage depends, to some degree, on certain types of individual capabilities (DMCs), rather than simply on organizational capabilities, known as dynamic capabilities (DCs).

Socio-emotional Wealth, while Family Conflict and Family Firm Governance Both Exist in Family Business

This study examines how family conflict and family firm governance affect socio-emotional wealth, with decision-making as a mediating variable. This research was carried out on 48 samples of individual family members, as well as business owners and managers to examine the perception of socio-emotional wealth. The method used in this research is quantitative, with PLS-SEM. The results show that family conflict has a negative but not significant effect on decision-making and socio-emotional wealth, and decision-making has a positive and significant effect on socio-emotional wealth, while family firm governance has a significant positive effect on decision-making and socio-emotional wealth. Meanwhile, decision-making has a low mediation effect in explaining the relationship between family firm governance and socio-emotional wealth. Keywords : Family conflict, family firm governance, decision-making, socio-emotional wealth, family business

Stewardship Theory: Realism, Relevance, and Family Firm Governance

Stewardship theory is a popular alternative to agency theory for studying family firm governance. Despite its contributions to management and family business studies, stewardship theory’s assumptions limit its realism and relevance. Using agency theory as a standard of comparison, I discuss stewardship theory’s model of man and its assumptions concerning goal alignment and control systems. I also discuss stewardship theory’s lack of assumptions about bounded rationality and pre-employment situations since the neglect of those issues reduce its realism and relevance. Based on this discussion, I argue that to increase its realism and relevance, stewardship theory’s assumptions should be revised.

Family board ownership, generational involvement and performance in family SMEs

PurposeIn order to deepen our knowledge of governance of family firms, the purpose of this paper is to focus our attention on the relation between family owners who are members of the board of directors and firm performance. Also, this study sheds more light on how the generation in charge of the family firm affects that relationship, as generational involvement may be a unique predictor of governance behavior in these firms.Design/methodology/approachThe authors applied a cross-sectional ordinary least squares regression model to test the hypotheses on a sample of 313 non-listed Spanish family SMEs. The authors suggest the possibility of a non-linear relationship between the percentage of ownership by family members of the board of directors and firm performance, and specifically, the authors propose an S-shaped effect that implies two breakpoints.FindingsThe authors find not only that an inverted U-shaped relationship exists, but also an S-shaped relationship between family board members’ ownership and firm performance in family SMEs. Nevertheless, the results are different in comparing first-, second- and later-generation family firms.Originality/valueThis is one of the few empirical studies that examine the relationship between family board ownership and firm performance in the context of non-listed family SMEs. The authors consider that the influences of family directors on the board of directors as well as the concentration of family ownership on the board of directors are worth studying in non-listed family SMEs. Moreover, previous studies have focused mainly on large listed family firms but not on unlisted ones.

Information asymmetry, legal environment, and family firm governance: Evidence from IPO underpricing in China

We study the interactions of information asymmetry, agency problems, and the local legal environment in the governance role of family firms through the lens of IPO underpricing in China. We find that the IPO underpricing of family business is lower than non-family business by a 12% margin after controlling for other factors. Furthermore, the smaller IPO underpricing for family firms is more pronounced for firms in regions with a relatively good legal environment. The mitigating role of family member directorship in reducing IPO underpricing is stronger when the legal environment index increases. The evidence suggests that information asymmetry outweighs the litigation risk in driving the IPO underpricing. The results are consistent with the notion that good legal protection reduces the moral hazard in the transfer of information between market participants, enhances the credibility of information disclosure and reduces the verification cost for outside investors.

Corporate Governance in Family Firms: towards a model based on Degree of Institutionalization (DI), Structuring Change (SC) and Destructuring Change (RC)

The family firm management literature underrates corporate governance issues both because in family firms the entrepreneur/owner tends to concentrate in his hands almost all the decision power and because the concept of family business is associated with that of small business. On the other hand, the ‘family’ character over firm governance have been traditionally analysed in terms of institutional overlap (family versus business) that causes processes of instability, conflicts, divisions and crisis, both inside the family and between owners and managers. Our paper, after an extremely literature recap, aims at proposing a different point of view on the corporate governance dynamics in family business and a different path to understand the change processes into this organizations adopting a Situationist View of the Organizations (SVO) that is focused on the continuous work of two processes: action and institutionalization, that build, break and rebuild social reality. Under this point of view some topics – institutional processes, coalitional games and power dynamics – suggest different considerations about the processes of governance and power. The concept of actor (or strategic actor) is of particular relevance. It refers to an individual (human actor) or, more often, a coalition of individuals able to act strategically for the protection of their specific interests. The concept of strategic actor goes far beyond the organizational boundaries, as often a coalition is composed by both internal and external members.

Research Hotspots and Tendencies of Family Firms in China

Family firm is a unique type of organization that has existed for a long time; however, it has only been researched recently as a mainstream subject in organization and management studies. Due to their significant heterogeneity, relevant studies in China and other countries present both common features, and diverse characteristics, which embedded in different contexts. To better understand how the family firm’s theory can enhance the development of family firm studies in China, we analyze and compare the evolution of family firm’s studies in China and other countries of the world. The paper built on the databases, Web of Science (WoS) and Chinese Social Sciences Citation Index (CSSCI), and use CiteSpace V, which is software for visualizing knowledge domains. The result shows that: 1) there are many studies on the governance, succession and performance of family firms in both China and other countries; 2) in literature of WoS, the literature had transformed from governance of company to a deep understanding of the influences of family characteristics on business strategy and entrepreneurship; 3) most studies of the Chinese family firm are about firm governance. Nevertheless, the definition and studies on family firms fail to connect with the Chinese culture and understanding of “family”. Additionally, the aspects, such as sustainable development, ecological efficiency and international competition of family firms, need further exploration.

Corporate Governance and Performance in Family Firms of China

Corporate Governance and Performance in Family Firms of China