Section Case Synopsis The article, ‘Family Corporate Governance: A Brief Literature Review’ by Goldberg and Kiron discusses the model of governance in privately owned businesses. The author says that they are mainly motivated by self interest resulting in short term goals. The two pertinent theories: Agency theory; and Stewardship theory along with concept of embeddedness try to identify owner’s behavior towards the business’s several stakeholders and how much owner and agent/manager’s interests are aligned to the broader goals of the business. They explain the structures, strategies and organizational behavior that promote the interests of the owners.
The main features of family businesses are therefore, family controlled decisions, conservative outlook and not much inclination towards reinvestment. Agency theory is focused on the interests of owners in making decisions based on their own financial gain and security. As such they tend to promote/ employ family members in key positions so owner-manager interests are aligned. It delivers lower long term returns and is less professionally managed. Stewardship theory stresses the emotional attachment of owners/ managers to the business and associates it with family honor and legacy for future generation.
Hence, it encourages innovation and risk and delivers higher returns to all its shareholders and stakeholders. Article claims that embeddedness is an important aspect of decision making process which is influenced by social relationships. It is fundamentally based on the premise that economic transactions are motivated by social relationship and sharing of information, values and ideas that shape perception and level of motivation. In family business, it is often influenced by the number of members involved in business. When CEO are founding members, they are more inclined to have long term vision and promote reinvestment.
(words: 278) Section 2 Case 2 The key differences between the corporate governance in major stock market company and governance in state owned organization such as IPDB are in its structure, strategies and their organization behavior. The private owned company primarily is motivated by self interests of the owners/ proprietors which tend to promote financial gains to long term re-investment. Also the private business ensures that businesses decisions are family controlled and therefore tries to gain majority by including family members in the company board and in key positions of the company.
Company only invests in long term risks and strategies if issues like family honor, attachment to the company and legacy for future generation are involved. Hence, in both the cases, family interests rather than various stakeholders becomes main aspect of governance of family backed enterprise. State owned organizations like IPDB emphasize on corporate governance based on the interests of all its stakeholders and shareholders. Hence, their structure and strategy are people centric. The board of directors of state owned organizations mostly comprise of people from the relevant government departments, independent directors who have no vested interest in the company and often from action groups who represent interests of common man.
It is for this purpose the strategies and organization behavior is more inclined to support public good. They are therefore more transparent in their working and ensure that through disclosure policies related to various aspects of business which directly or indirectly impact stakeholders vis-à-vis risk management, environment, sustainable development practices etc. (words: 251) Reference Resources as provided.