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.

Are non-blood related “family” members treated differently? Determinants of bifurcation bias among family members in the family firm

“…Since the genesis of family business research, a central question has been, "how do family firms differ from non-family firms?" As the field has advanced, efforts to understand the heterogeneity of family firms have become more common (Arregle et al, 2012;Chua et al, 2012;Li and Despit, 2016;Melin and Nordqvist, 2007;Sharma et al, 1997;Sharma, 2004;Arteaga and Escrib a-Esteve, 2020). Yet, certain domains of family firm research still make assumptions based on homogeneity.…”

The Impact of Family Business Governance on Organizational Innovation: A Field Study at Family Firms Operating in Yemen

“…The governance mechanisms in family firms vary in types and significance as compared with corporate governance structures adopted by nonfamily-held firms. Such difference lies in the family firm's formal internal governance due to ownership concentration and control by small number of family owners and/or owner-managers (Chrisman, Chua, Breton-Miller, Miller, & Steier, 2018), and also the heterogeneity among these firms regarding the adoption of various family governance structures (Arteaga & Escribá-Esteve, 2020;Gersick & Feliu, 2013;Suess, 2014). Thus, a three-circle model of family business system is used to explain the interrelated governance structures.…”

Managerial Controls in Private Family Firms: The Influence of a Family’s Decision Premises

“…Recent studies supported by the nST combined insights from the governance and management literature by particularly investigating the relationship between decision premises and the adoption of governance and managerial mechanisms [24], trust [25], and social forms related to family business families [46]. In the next subsection, we explore the hypotheses considering the influence of decision premises (FCI and TGO) on the design of formal and participative managerial controls such as target setting and performance measurement.…”

“…To contribute to this literature and examine the influence of a family's intentions on the control choices made in a family firm, we rely on the New Systems Theory (nST) [23], which according to a growing stream of literature, an appropriate theoretical lens to investigate family business governance and family business management [24][25][26]. According to Luhmann's [27] new system theory, organizations develop through the communication of decision premises which are expected to influence actual decision-making [23,28].…”

“…Frank et al [23] draw on systems theory [27,29] to state that decision premises regulate and institutionalize the influence of the family on the family firm. Arteaga and Escribá-Esteve [24] found that these communication systems, which are translated in terms of decision premises, might lead or hinder the adoption of family governance mechanisms. In terms of our study, we intend to investigate whether a family's decision premises also act as antecedents of the control choices made in a family firm.…”