Family Corporate Governance-A Brief Literature Review

Family Corporate Governance- A Brief Literature Review Group 11Radha NarayananAnkit SachdevaApurv MishraNirmal RajManisha Tanvi

Academic Studies have tried to explain governance of family owned firms by the following theories:Agency theoryStewardship theoryEmbeddedness

This literature review examines if embeddedness can help explain whether family owners act like agents/stewards and the extent to which stakeholders can influence the behavior of family owners

Prevalent in the 1970s, refers to conflicts of interests between owners and managers which jeopardize the firms successFamily owners are self-interested and tend to use the firm for personal benefits Agency oriented behaviors lead to risk aversion & altruism towards selected membersAgency theorists prescribe having a board with independent directors who can oversee key business issuesAgency Theory

Emerged in late 1980s and early 1990s, defines relationships based on behavioral premisesFamily owners take decisions in order to enhance value for all stakeholdersFamily members are emotionally attached to the firmProfound levels of investments and risk translate into long term benefits for all stakeholdersStewardship Theory

An analytical tool used across social sciences, talks about social tiesEmbeddedness in the family firm is determined by: Presence Interaction/Dispersion of Family Control Emotional context/Multi-generational involvement Power/Family controlEmbeddedness

Findings on embeddedness of owner-executives within the family have been summarized by a researcher : lone founders are immune from family influence, family founder CEOs and chairmen are resistant, later generation family CEOs are susceptibleIndependent board members can be an effective counterweight to embeddedness, depending on their competencies, priorities, access to information, etc

Reducing the number of family members involved in a business, concentrating voting power may or may not suffice to increase stewardship behaviorThe extent to which agency and stewardship behavior influence and drive performance is yet unclear and thus open to debateConclusion

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