Family constitution to manage family firms’ agency conflicts

  1. Pablo Rodriguez-Garcia 1
  2. Susana Menéndez-Requejo 1
  1. 1 University of Oviedo, Oviedo, Spain
Revista:
Business Research Quarterly

ISSN: 2340-9444,  2340-9436

Año de publicación: 2023

Volumen: 26

Número: 2

Páginas: 150-166

Tipo: Artículo

DOI: 10.1177/2340944420980444 DIALNET GOOGLE SCHOLAR lock_openAcceso abierto editor

Otras publicaciones en: Business Research Quarterly

Resumen

This research examines the effectiveness of Family Constitution or Family Protocol agreements in mitigating each type of agency conflict in family firms. We performed a qualitative analysis, through a case study, and found that the succession process is the main driver for implementing this family governance mechanism. Our findings also show that a family constitution is useful in reducing three of the four agency conflicts described in the literature, specifically between family owners and managers, between family shareholders, and with the family at large. Key agreements include training and experience terms for family members to join the firm, transfer clauses of shares inter-vivos and causa mortis, and the development of family governance bodies. However, creditors are generally unaware of the protocol’s existence, hindering its potential positive effects, which has important implications for practitioners. Creditors point out its potential usefulness as a hint of orderly and structured continuity of the business.

Referencias bibliográficas

  • Alvarado-Alvarez C., Armadans I., Parada M. J. (2020). Tracing the roots of constructive conflict management in family firms. Negotiation and Conflict Management Research, 13(2), 105–126.
  • Anderson R. C., Reeb D. M. (2003). Founding-family ownership, corporate diversification, and firm leverage. Journal of Law and Economics, 46, 653–684.
  • Ang J. S., Cole R. A., Lin J. W. (2000). Agency costs and ownership structure. Journal of Finance, 55, 81–106.
  • Arteaga R., Menéndez-Requejo S. (2017). Family constitution and business performance: Moderating factors. Family Business Review, 30(4), 320–338.
  • Barney J. B., Hesterly W. (2006). Organizational economic: Understanding the relationship between organizations and economic analysis. In Clegg S. R., Hardy C., Lawrence T., Nord W. R. (Eds.), The SAGE handbook of organization studies (pp. 111–148). SAGE.
  • Bennedsen M., Pérez-González F., Wolfenzon D. (2006). Do CEOs matter (NYU Working Paper, No. FIN-06-032). New York University.
  • Berent-Braun M. M., Uhlaner L. M. (2012). Family governance practices and teambuilding: Paradox of the enterprising family. Small Business Economics, 38(1), 103–119.
  • Berger A. N., Udell G. F. (2002). Small business credit availability and relationship lending: The importance of bank organizational structure. The Economic Journal, 112(477), 32–53.
  • Berrone P., Cruz C., Gómez-Mejía L. R. (2012). Socioemotional wealth in family firms: Theoretical dimensions, assessment approaches, and agenda for future research. Family Business Review, 25(3), 258–279.
  • Blumentritt T., Keyt A., Astrachan J. (2007). Creating an environment for successful nonfamily CEOs: An exploratory study of good principals. Family Business Review, 20(4), 321–335.
  • Botero I., Gómez-Betancourt G., Ramírez J., López-Vergara M. (2015). Family protocols as governance tools. Journal of Family Business Management, 5(2), 218–237.
  • Brenes E. R., Madrigal K., Requena B. (2011). Corporate governance and family business performance. Journal of Business Research, 64(3), 280–285.
  • Buchanan J. M. (1975). The Samaritan’s Dilemma. In Phelps E (Ed.), Altruism, morality and economic theory (pp. 71–75). Russell Sage Foundation.
  • Cabrera-Suárez K. (2005). Leadership transfer and the successor’s development in the family firm. The Leadership Quarterly, 16(1), 71–96.
  • Carney M., van Essen M., Gedajlovic E. R., Heugens P. (2015). What do we know about private family firms? A meta-analytical review. Entrepreneurship: Theory and Practice, 39(3), 513–544.
  • Caselli F., Gennaioli N. (2013). Dynastic management. Economic Inquiry, 51(1), 971–996.
  • Chrisman J. J., Chua J. H., Litz R. (2003). A unified systems perspective of family firm performance: An extension and integration. Journal of Business Venturing, 18(4), 467–472.
  • Chua J. H., Chrisman J. J., Bergiel E. B. (2009). An agency theoretic analysis of the professionalized family firm. Entrepreneurship Theory and Practice, 33, 355–372.
  • Chua J. H., Chrisman J. J., Sharma P. (1999). Defining the family business by behavior. Entrepreneurship Theory and Practice, 23(4), 19–39.
  • Chung T. Y. (1991). Incomplete contracts, specific investments, and risk sharing. The Review of Economic Studies, 58(5), 1031–1042.
  • Claessens S., Djankov S., Fan J. P. H., Lang L. H. P. (2002). Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance, 57(6), 2741–2771.
  • Corbetta G., Montemerlo D. (2000). Family protocols: Our experience in Italy. The Family Business Network Newsletter, 26, 7–11.
  • Crespí R., Martín-Oliver A. (2015). Do family firms have better access to external finance during crises? Corporate Governance: An International Review, 23, 249–265.
  • Croci E., Doukas J. A., Gonenc H. (2011). Family control and financing decisions. European Financial Management, 17(5), 860–897.
  • D’Aurizio L., Oliviero T., Romano L. (2015). Family firms, soft information and bank lending in a financial crisis. Journal of Corporate Finance, 33, 279–292.
  • Dekker J., Lybaert N., Steijvers T., Depaire B. (2015). The effect of family business professionalization as a multidimensional construct on firm performance. Journal of Small Business Management, 53(2), 516–538.
  • De Massis A., Kotlar J. (2014). The case study method in family business research: Guidelines for qualitative scholarship. Journal of Family Business Strategy, 5(1), 15–29.
  • Denzin N. K., Lincoln Y. S. (1994). Handbook of qualitative research. SAGE.
  • Díaz-Díaz N., García-Teruel P., Martínez-Solano P. (2016). Debt maturity structure in private firms: Does the family control matter? Journal of Corporate Finance, 37, 393–411.
  • Eisenhardt K. (1989). Building theories from case study research. Academy of Management Review, 14(4), 532–550.
  • Fama E. F. (1985). What’s different about banks? Journal of Monetary Economics, 15(1), 29–39.
  • Fleischer H. (2018). Family firms and family constitutions: A legal primer. European Company Law, 15(1), 11–20.
  • Gallo M. A., Tomaselli S. (2006). Formulating, implementing and maintaining family protocols. In Poutziouris P. Z., Smyrnios K. X., Klein S. B. (Eds.), Handbook of research on family business (pp. 298–316). Edward Elgar.
  • Gallo M. A., Ward J. (1991). Family protocol (DGN-448). Technical Note Research Division, IESE.
  • Gersick K. E., Davis J. A., Hampton M. M., Lansberg I. (1997). Generation to generation: Lifecycles of the family business. Harvard Business School Press.
  • Gómez-Mejía L. R., Cruz C., Berrone P., De Castro J. (2011). The bind that ties: Socioemotional wealth preservation in family firms. Academy of Management Annals, 5(1), 653–707.
  • Gómez-Mejía L. R., Haynes K. T., Nuñez-Nickel M., Jacobson K. J. L., Moyano-Fuentes J. (2007). Socioemotional wealth and business risks in family-controlled firms: Evidence from Spanish olive oil mills. Administrative Science Quarterly, 52(1), 106–137.
  • Gómez-Mejía L. R., Makri M., Larraza M. (2010). Diversification decisions in family-controlled firms. Journal of Management Studies, 47(2), 223–252.
  • Grossman S. J., Hart O. D. (1980). Takeover bids, the free-rider problem, and the theory of the corporation. The Bell Journal of Economics, 11(1), 42–64.
  • Harvey M., Evans R. E. (1994). Family business and multiple levels of conflict. Family Business Review, 7(4), 331–348.
  • Hernández-Linares R., Kellermanns F. W., López-Fernández M. C., Sarkar S. (2020). The effect of socioemotional wealth on the relationship between entrepreneurial orientation and family business performance. Business Research Quarterly, 23(3), 174–192.
  • Jensen M. C., Meckling W. H. (1976). Theory of firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
  • Johnson S., La Porta R., López-de-Silanes F., Shleifer A. (2000). Tunneling. American Economic Review, 90, 22–27.
  • Kaplan S. N., Minton B. A. (1994). Appointments of outsiders to Japanese boards: Determinants and implications for managers. Journal of Financial Economics, 36(2), 225–258.
  • Kellermanns F. W., Eddleston K. A., Zellweger T. M. (2012). Extending the socioemotional wealth perspective: A look at the dark side. Entrepreneurship Theory and Practice, 36, 1175–1182.
  • Koeberle-Schmid A., Kenyon-Rouvinez D., Poza E. (2013). Governance in family enterprises: Maximising economic and emotional success. Springer.
  • Lacave I. S., Gutiérrez N. B. (2010). Specific investments, opportunism and corporate contracts: A theory of tag-along and drag-along clauses. European Business Organization Law Review (EBOR), 11(3), 423–458.
  • La Porta R., López-de-Silanes F., Shleifer A., Vishny R. (2000). Investor protection and corporate governance. Journal of Financial Economics, 58(1–2), 3–27.
  • La Porta R., López de Silanes F., Shleifer A., Vishny R. (2002). Investor protection and corporate valuation. Journal of Finance, 57(3), 1147–1170.
  • Levinson H. (1971). Conflicts that plague family business. Harvard Business Review, 49(2), 90–98.
  • Martin H. F. (2001). Is family governance an oxymoron? Family Business Review, 14(2), 91–96.
  • Matias C., Franco M. (2018). Family protocol: How it shapes succession in family firms. Journal of Business Strategy, 41(3), 35–44.
  • Mayer C. (1999). Firm control. Inaugural lecture. Said Business School, University of Oxford.
  • Miller D., Le Breton-Miller I., Lester R. H., Cannella A. AJr. (2007). Are family firms really superior performers? Journal of Corporate Finance, 13, 829–858.
  • Minichilli A., Brogi M., Calabró A. (2016). Weathering the storm: Family ownership, governance, and performance through the financial and economic crisis. Corporate Governance: An International Review, 24(6), 552–568.
  • Molly V., Laveren E., Jorissen A. (2012). Intergenerational differences in family firms: Impact on capital structure and growth behavior. Entrepreneurship Theory and Practice, 36, 703–725.
  • Montemerlo D., Ward J. L. (2011). The Family Constitution: Agreements to secure and perpetuate your family and your business. Macmillan.
  • Morck R., Wolfenzon D., Yeung B. (2005). Corporate governance, economic entrenchment, and growth. Journal of Economic Literature, 43(3), 655–720.
  • Mustakallio M., Autio E., Zahra S. A. (2002). Relational and contractual governance in family firms: Effects on strategic decision making. Family Business Review, 15(3), 205–222.
  • Official Journal of the European Union. (2016, January 15). Opinion of the European Economic and Social Committee on “Family businesses in Europe as a source of renewed growth and better jobs” (C 13/11). https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52015IE0722&from=CS
  • Patton M. (1987). How to use qualitative methods in evaluation (No. 4). SAGE.
  • Pavón M. (2018). El Protocolo Familiar. Estructura y Contenido [The Family Protocol. Structure and Content]. Ed. Lefebvre.
  • Schmid T. (2013). Control considerations, creditor monitoring, and the capital structure of family firms. Journal of Banking & Finance, 37, 257–272.
  • Schulze W. S., Lubatkin M. H., Dino R. N. (2003a). Exploring the agency consequences of ownership dispersion among the directors of private family firms. Academy of Management Journal, 46(2), 179–194.
  • Schulze W. S., Lubatkin M. H., Dino R. N. (2003b). Toward a theory of agency and altruism in family firms. Journal of Business Venturing, 18, 473–490.
  • Schulze W. S., Lubatkin M. H., Dino R. N., Buchholtz A. K. (2001). Agency relationships in family firms: Theory and evidence. Organization Science, 12(2), 99–116.
  • Stake R. E. (1995). The art of case study research. SAGE.
  • Steijvers T., Voordeckers W. (2009). Private family ownership and the agency costs of debt. Family Business Review, 22, 333–346.
  • Suáre K. C., Santana-Martín D. J. (2004). Governance in Spanish family business. International Journal of Entrepreneurial Behaviour & Research, 10(1/2), 141–163.
  • Suddaby R. (2006). What grounded theory is not. Academy of Management Journal, 49(4), 633–642.
  • Suess J. (2014). Family governance—Literature review and the development of a conceptual model. Journal of Family Business Strategy, 5(2), 138–155.
  • Tapies J., Ceja L. (2011). Family protocol: Better to agree and put it in writing. IESE Insight.
  • Van den Berghe L. A. A., Carchon S. (2003). Agency relations within the family business system: An exploratory approach. Corporate Governance: An International Review, 11(3), 171–179.
  • van Essen M., Strike V. M., Carney M., Sapp S. (2015). The resilient family firm: Stakeholder outcomes and institutional effects. Corporate Governance: An International Review, 23(3), 167–183.
  • Villalonga B., Amit R. (2006). How do family ownership, control and management affect firm value? Journal of Financial Economics, 80(2), 385–417.
  • Villalonga B., Amit R. (2010). Family control of firms and industries. Financial Management, 39(3), 863–904.
  • Villalonga B., Amit R., Trujillo M. A., Guzmán A. (2015). Governance of family firms. Annual Review of Financial Economics, 7, 635–654.
  • Yin R. (2003). Case study research: Design and methods. SAGE.
  • Zahra S. A., Pearce J. A. (1989). Boards of directors and corporate financial performance: A review and integrative mode. Journal of Management, 15(2), 291–334.
  • Zellweger T., Kammerlander N. (2015). Family, wealth and governance: An agency account. Entrepreneurship Theory and Practice, 39(6), 1281–1303.
Fuente de los datos: Dialnet