Corporate Governance and Competitive Advantage in Family–Controlled Firms

Abstract

Recent attempts to identify the basis of family–controlled firms’ competitive advantage have drawn upon the resource–based view of the firm. This article supplements these efforts and advances the argument that family–controlled firms’ competitive advantage arises from their system of corporate governance. Systems of corporate governance embody incentives, authority patterns, and norms of legitimation that generate particular organizational propensities to create competitive advantages and disadvantages. For comparative purposes, the characteristics of managerial, alliance, and family governance are reviewed. The impact of a family's control rights over a firm's assets generates three dominant propensities (parsimony, personalism, and particularism). These propensities give advantages in scarce environments, facilitate the creation and utilization of social capital, and engender opportunistic investment processes. The experience of family–controlled firms in emerging markets is drawn upon to illustrate the argument.