Conclusion

Governance is the key to increased professionalism and proper management of the family firm. Financial performance under the founder of a family firm is usually quite good. Miller and Le Bretton-Miller (2005, 2006) show numerous instances of family firms financially outperforming nonfamily firms. Data show the second and third generation family CEOs have not enjoyed a similar amount of financial outperformance as their family predecessors (Miller, Le Breton-Miller, and Lester 2011). This shows the increased need for proper governance in the second, third, and future generations. If the second and third generations do not institute effective governance structures and professional management and instead continue to try and run the firm as the founder did, the result is usually slowed growth. The best managed family firms have increased professionalism with the utilization of proper governance tools.

As discussed, the choice of which governance tools to use depends on several factors, including what generation is in control, the number of involved family members, the size of the firm, its complexity, and whether the company is family owned or family controlled. There is no one single answer as to what mechanism or type of governance is best. The answer is it depends. It depends on the ownership structure and numerous company-specific factors. What works at one stage of the ownership cycle usually does not work well at other stages. Families in control should take a cautious look at the governance solutions recommended for their specific stage and decide what is best for their company and their family (IFC 2008).

For example, a small one-generation family-owned firm would be fine with the founder CEO making almost all the decisions and running the company as they see fit. This is the type of simple and informal governance structure needed for this type of firm to excel. The founder is the person who has the passion for the business, having started it and led it successfully. This type of firm would benefit from a lack of formal governance mechanisms until it advanced to a larger size, involved more family members, or approached the start of a succession of leadership. Conversely, a large public company controlled by a family would benefit by having many governance mechanisms, including a strong and independent BOD, a separate CEO role from the chairman’s role, a family council, and a shareholders council. Experienced non-family CEOs can add to the professionalism of a large and growing family controlled firm (Blumentritt, Keyt, and Astrachan 2007).