Emerging paradigms of corporate governance and managerial professionalization in family firms

Most businesses, particularly in Asia, are family controlled and managed, contributing immensely to the development of the economies. A majority of family firms start with small to mid-sized business operations. During the early stages of the firm's life cycle, managerial functions are mostly performed by members of the controlling family (Dyer & Handler, 1994). Research shows that family firms benefit due to involvement of family members, as they bring unique capabilities and resources - termed 'familiness' (Habbershon & Williams, 1999), that contribute to the firm's competitive advantage (Aronoff & Ward, 1995;Sirmon & Hitt, 2003). However, as the firm grows overtime, business operations become increasingly complex and specialized. Systems and processes are required to be established for effective management of a growing business (Chandler, 1990; Casson, 2000; Walsh, 2010). Formulation of a clear strategy, grooming of a professionalized organization and having leadership that practices high-quality governance are important mechanisms to preserve family businesses. However, most family businesses do not survive beyond three or four generations, due to their lack of understanding and capabilities to manage challenges which are unique to family businesses. Besides their uniqueness arising out of the overlap of conflicting priorities of the key stakeholders in terms of ownership, management and family responsibilities, family businesses are also on a discovery-driven journey on the organization life cycle. The complex situation created by the interplay of multiple forces makes both professionalization and corporate governance quite challenging. This chapter discusses the difficulties of developing and managing corporate governance and professionalization in family-controlled businesses.