Family governance and firm performance: Agency, stewardship, and capabilities

After decades of being viewed as obsolete and problem ridden, recent research has begun to show that major, publicly traded family-controlled businesses (FCBs) actually outperform other types of businesses. This article examines the nature of such family businesses in an attempt to explain why some seem to do so well and others so poorly. It begins with four fundamental governance choices that distinguish among different kinds of family businesses: level and mode of family ownership, family leadership, the broader involvement of multiple family members, and the planned or actual participation of later generations. Using precepts from agency and stewardship theory, it relates these dimensions to the nature of the resource-allocation decisions made by the business and capability development, which in turn have implications for financial performance. Propositions are drawn about the drivers that make some family businesses great competitors-while leaving others at a disadvantage.