“Comment on ‘Family Values or Crony Capitalism?’ (Harold James)” 2008 Randall Morck Capitalism and Society 3 (1).
The 20th century ran countless experiments to see what form of government works least badly. Unless things turn around unexpectedly, James I would have lost money betting on the absolute monarchy. The 21st century now gets to sort out what form of corporate governance works least badly; and I suspect Prof. James is premature in declaring for family firms.
“Family Values or Crony Capitalism?” Harold James Capitalism and Society 3 (1) 2008
Family firms are very prominent in many parts of the world, including in many of the most dynamic emerging markets. They are often thought to be associated with poor corporate and political governance. This article examines the debate about their durability and efficiency, using material drawn from the long experience of continental Europe and sketches out an ideal type of the family, in which there is a historical experience of entrepreneurship, a brand, and a network built around family enterprise. It then tests various common explanations for the prevalence of family firms, including Roman law versus common law traditions, tax incentives, share voting privileges, and inheritance law; and finds that each applies only in a quite particular historical epoch. Finally, the article suggests that family businesses offer advantages that are most apparent at times of shocks and discontinuities, and that they are thus a response to uneven development.
“The Bind that Ties: Socioemotional Wealth Preservation in Family Firms”
Luis R. Gomez-Mejia, Cristina Cruz, Pascual Berrone & Julio De Castro The Academy of Management Annals 5 (1): 653–707. 2011
A growing body of research shows that family firms are different from other organizations in significant ways. In this paper we review this literature by examining how family firms differ from nonfamily firms along five broad categories of managerial decisions. These categories encompass a set of key organizational choices concerning management processes, firm strategies, corporate governance, stakeholder relations and business venturing. We argue that socioemotional wealth or affective endowment of family owners explain many of these choices. We also examine some contingency factors (namely family stage, firm size, firm hazard, and the presence of nonfamily shareholders) that moderate the influence of socioemotional wealth preservation as a point of reference when making managerial decisions in family firms. Lastly, we explore the firm performance consequences of family ownership.
“The Role of Family in Family Firms,” Marianne Bertrand and Antoinette Schoar, The Journal of Economic Perspectives 20, no. 2 (2006): 73–96. (Open Access)
History is replete with examples of spectacular ascents of family businesses. Yet there are also numerous accounts of family businesses brought down by bitter feuds among family members, disappointed expectations between generations, and tragic sagas of later generations unable to manage their wealth. A large fraction of businesses throughout the world are organized around families. Why are family firms so prevalent? What are the implications of family control for the governance, financing and overall performance of these businesses?
“Corporate Ownership Around the World” Rafael La Porta, Florencio Lopez-De-Silanes, Andrei Shleifer The Journal of Finance 54 (2): 471–517. 1999 (Open Access)
We use data on ownership structures of large corporations in 27 wealthy economies to identify the ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely held, in contrast to Berle and Means’s image of ownership of the modern corporation. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions is far less common. The controlling shareholders typically have power over firms significantly in excess of their cash flow rights, primarily through the use of pyramids and participation in management.