Guidelines for Family Business Boards of Directors

Posted: 11 Nov 2009

See all articles by Suzanne Lane

Suzanne Lane

University of Pittsburgh - School of Education

Joseph H. Astrachan

Kennesaw State University - Michael J. Coles College of Business

Andrew Keyt

Loyola University of Chicago - School of Business Administration

Kristi McMillan

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: 2006

Abstract

The focus of this study iswhether reforms ofgovernance guidelines and standards proposed for publicly held corporations areappropriate for closely held, family-owned businesses. Two models of governanceare contrasted: the market model of corporate governance is common (especiallyin the U.S., U.K., and Ireland) where capital markets are highly liquid andshareholders are dispersed. The control model is common were ownership isconcentrated and control is not fully separated from ownership. The typicalclosely-held family business exhibits characteristics of the control model. It isargued that many corporate governance reforms suitable for themarket model may be detrimental to the family business. The recommendations mayharm family unity or be too complex for private firms (being applicable only tovery large public companies). The heart of corporate governance isaccountability: the need for decision makers to justify and acceptresponsibility for decisions and their implementation. For family firms,accountability also involves avoiding conflicts between family and businessroles and preserving trust and unity. Proposes guidelines for family-owned firms that, if implemented would leadto great board accountability and positive results in board and companyperformance. Recommendations toward achieving accountability are offered underthree categories: (1) competencies needed to ensure shareholder accountability,(2) ways shareholders should exert rights to hold board accountable, and (3)actions the board must take to hold management accountable. The biases of themarket model are discussed with each recommendation and its justification. To achieve accountability, a competency-based board focusing on balancingmonitoring and collaboration is needed for the typical family-owned firmoperating under the control model. Although no single model can account for themany configurations of firms, the guides offered are considered to bebest suited to the typical family business. (TNM)

Keywords: Family firms, Firm ownership, Accountability, Boards of directors, Firm governance, Shareholders, Firm performance

Suggested Citation

Lane, Suzanne and Astrachan, Joseph H. and Keyt, Andrew and McMillan, Kristi, Guidelines for Family Business Boards of Directors (2006). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1503835

Suzanne Lane (Contact Author)

University of Pittsburgh - School of Education ( email )

United States
412-648-7095 (Phone)

HOME PAGE: http://www.education.pitt.edu/people/SuzanneLane/index.aspx

Joseph H. Astrachan

Kennesaw State University - Michael J. Coles College of Business ( email )

1000 Chastain Road
Kennesaw, GA 30144
United States

Andrew Keyt

Loyola University of Chicago - School of Business Administration ( email )

820 North Michigan Avenue
Chicago, IL 60611
United States
312-915-6490 (Phone)

HOME PAGE: http://www.sba.luc.edu/faculty/facultydetail.cfm?EID=akeyt@luc.edu

Kristi McMillan

affiliation not provided to SSRN

No Address Available

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