Governance Issues in a Family Business - Research Paper Example

Organizations pursue competencies that make firms globally competitive. Companies’ pursuit of competencies is no longer just limited to financial and physical capital, but it also includes human capital. This move is necessary to create added value to their services or products, attract new customers, and retain loyal clients (Nordhaug, 1993; Westhead & Matlay, 2006). However, despite the fast phase changes in the modern period, the significant and integral role of the family in the economic activities of the society remains undeterred (Aldrich & Cliff, 2003).

Of the several facets manifesting the integral role of the family in the society, the influence of family on business, in terms of firm creation and management, is no longer limited to small businesses, but it also consists of large corporations with families holding majority shares (Steier, Chrisman & Chua, 2004). This scenario is observed not only in the United States and in Europe, but it is also an event that has become perceptible in China, Japan, and other Asian countries (Steier et al., 2004).

As such, it can be claimed that there is pervasive participation of families in the establishment and management of economic institutions that redefines the role of families in economic organizations and activities as well as in organizational life (Aldrich & Cliff, 2003; Morck & Nakamura, 2003; Steier et al., 2004). In this context, family-owned business (FOB), just like non-family-owned business, requires effective governance for the firm to achieve continued growth and success. Implementation of policies, strategies, and management by family founders/owners are geared towards attaining efficient and effective governance that will sustain and maintain the family corporation (Angus, 2005).

Effective FOB governance is essential not only in handling organizational issues and in wealth management of the FOB, but it is also necessary for handling conflicts arising from family relations involve in the business (Moore& Juenemann, 2008).