Good governance is crucial in ensuring the sustainability and professionalization of family businesses. Unlike non-family firms, family firms are likely to face certain challenges such as dual roles, emotional decision-making, and unclear succession planning. Without formal governance structures, these issues are likely to lead to internal conflict and limit long-term growth (Gersick et al., 1997).
Academic literature highlights the benefit of employing arrangements like family councils, shareholder agreements, and separate boards to specify roles and reduce uncertainty (IFC, 2011). Such structures do not only improve decision-making but also allow transparency and investor trust, especially where family firms seek external finance or expansion (Gómez-Mejía et al., 2007).
Good governance doesn't mean removing the family’s influence, but establishing clear frameworks that align family values with business performance.
References
Gersick, K.E., Davis, J.A., Hampton, M.M. and Lansberg, I. (1997). Generation to Generation: Life Cycles of the Family Business. Boston: Harvard Business School Press.
Gómez-Mejía, L.R., Haynes, K.T., Núñez-Nickel, M., Jacobson, K.J.L. and Moyano-Fuentes, J. (2007). Socioemotional wealth and business risks in family-controlled firms. Administrative Science Quarterly, 52(1), pp.106–137.
IFC (2011). Family Business Governance Handbook, 2nd ed. International Finance Corporation.