Evolution of Governance Arrangements in the Family Firm (CBR project)

Overview

Aims and objectives

This project on the evolution of governance arrangements in the family firm explored the evolution of governance structures and processes within the family founded firm as it seeks to manage growth. The project was completed in the autumn of 2001.

During 2001-2002 a number of papers which had previously been reported as forthcoming were published. The research comprised case study research where governance practices of family firms were explored. The case studies were drawn principally from the UK and Japan. The Japan/UK comparison was especially timely in view of the emphasis being given in both countries to attempts to nurture entrepreneurial businesses. At start up many enterprises rely very heavily on family structures; for example partners, parents or relatives are often included in the early group of employees. Even without explicit ‘blood’ ties many start ups are founded in quasi family ties of close friendships and personal loyalties. The attraction for founders of being able to draw upon such family relationships in the early stages of the enterprise are manifold; individuals are known, their labour is flexible, they can be trusted, loyalty and confidentiality can be counted upon, the demands of the new firm can be met in a way that prevents too sharp a division between work and home. The growth of such enterprises, however, raises a number of serious problems. For example, the management of the company can be complicated by tensions inherent in the founding family structures.

Also the growth of family firms is usually accompanied by the need to attract external finance. This is often accompanied by some degree of bureaucratisation, including the adoption of more formal governance structures in order to ensure appropriate accountabilities to external parties.

Results and dissemination

One of the principal conceptual contributions of the research has been to explore some of the meanings associated with ownership of the firm, which has received relatively little attention in the fields of economics and management science. The notion that shareholders are de facto owners of corporations, who appoint managers as their agents, is often taken for granted in the corporate governance literature. This project, in exploring the evolution of governance arrangements in the family firm, where majority shareholders are often also senior managers, has tried to cast some light on the changing nature of ‘ownership’ as the firm grows.

Project leaders

• Hugh Whittaker
• John Roberts

Research fellow

• Simon Learmount

Project status

Completed