How to keep the family in business: Causes and effects of functional family governance

The existence of a family that influences the business represents the primary differentiator between family businesses and its counterparts. Paradoxically, the integration of the family into family business research has so far been largely ignored resulting in a fragmented, incomplete perception of the family business. To shed light on how the business can effectively benefit from the family as a resource, this paper focuses on family governance, and its inherent causes and effects. Although substantial contributions have been made over the last few years, research on family governance is still in a rather early stage and especially theory development has, so far, been carried out to an insufficient extent. Therefore, based on a single case study, this paper tries to connect family governance with new systems theory, which differs from other theories due to its broad scope and applicability. Results indicate dysfunctional family conflict, succession planning and the need to align goals and define basic values to act as the main causes for establishing a family governance system. As such, family governance strengthens family cohesion and harmony, as well as the family's influence across generations. It provokes responsible ownership behavior, social responsibility towards employees and ultimately also has financial effects.