Board Processes in Family Firms: The Effect of Family Ties on the Balancing of Trust and Control

Abstract

In this article we present a theoretical framework for understanding the influence of the family system on the functioning of boards of directors. Our starting point is that effective board processes require non-executive directors to properly balance trust and control in their relationship with the CEO. We clarify how the presence of family ties between both parties facilitates the building of ability and intentional trust, but increases the danger of inadequate control. Moreover, we argue that the influence of family ties is dependent upon the level of family cohesion and the generational dynamics. Our theoretical analysis reveals how the study of agency relationships in family firms must consider opportunistic tendencies, stewardship motives, social context, and the bounded rationality problem