Family Corporate

Governance- A Brief
Literature Review
Group 11
Radha Narayanan
Ankit Sachdeva
Apurv Mishra
Nirmal Raj
Manisha Tanvi

Academic Studies have tried to explain governance of

family owned firms by the following theories:
Agency theory
Stewardship theory
Embeddedness

This literature review examines if embeddedness can

help explain whether family owners act like
agents/stewards and the extent to which stakeholders
can influence the behavior of family owners

Agency Theory

Prevalent in the 1970s, refers to conflicts of

interests between owners and managers which
jeopardize the firms success

Family owners are self-interested and tend to

use the firm for personal benefits

Agency oriented behaviors lead to risk aversion

& altruism towards selected members

Agency theorists prescribe having a board with

independent directors who can oversee key

Stewardship Theory

Emerged in late 1980s and early 1990s, defines

relationships based on behavioral premises

Family owners take decisions in order to

enhance value for all stakeholders

Family members are emotionally attached to

the firm

Profound levels of investments and risk

translate into long term benefits for all
stakeholders

Embeddedness

An analytical tool used across social sciences,

talks about social ties

Embeddedness in the family firm is determined

by:
Presence
Interaction/Dispersion of Family Control
Emotional context/Multi-generational

involvement
Power/Family control

Findings on embeddedness of owner-executives

within the family have been summarized by a
researcher : lone founders are immune from family
influence, family founder CEOs and chairmen are
resistant, later generation family CEOs are
susceptible

Independent board members can be an effective

counterweight to embeddedness, depending on their
competencies, priorities, access to information, etc

Conclusion

Reducing the number of family members

involved in a business, concentrating voting
power may or may not suffice to increase
stewardship behavior

The extent to which agency and stewardship

behavior influence and drive performance is yet
unclear and thus open to debate

THANK YOU