The resulting report identified the board characteristics associated with survival or failure in all firms, and determined that it’s these characteristics that are important in explaining the lower failure probability of family firms.
Family firms and board composition
The question of whether family firms perform better than their non-family counterparts has been hotly debated over the years, and a central aspect of family firm performance concerns survival across generations. Survival also relates to the longevity of the family firm as a viable entity though i.e. whether the firm goes bankrupt or not.
The boards of family firms play a central role in deciding upon strategy and accordingly, have ultimate control of the direction of the firm to ensure its survival as an independent entity. The researchers suggest that the board composition and characteristics that are more prevalent in, or unique to, family firms involve more human and social capital resources associated with lower bankruptcy risk. In other words, families can put together and maintain boards that give the firm a higher chance of survival.
Failure probability and bankruptcy risk
The report found evidence that family firms put together stronger boards, at least in relation to failure probability. The attributes of the board that are related to lower bankruptcy risk are:
- board size
- the age and experience of directors
- gender diversity
- director (co)location
- networks (multiple directorships).
Board attributes that are related to higher bankruptcy risk are:
- board instability
- previous failure experiences
- the ratio of independent directors.
Family firms vs. non-family firms infographic
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