Blood is thicker than merit: When is transition from professional to family governance appropriate?

Abstract

We explore the circumstances under which a non-family business (NFB) might adopt some of the characteristics of a family business (FB). We conduct an in-depth analysis of the recent developments at Infosys Technologies, a listed company that over its 32 year history had taken great pains to adopt the corporate governance characteristics of an NFB. In June 2013, the board made an announcement that seemed to move its corporate governance towards an FB model. We assess the pros and cons of such a transition for the interests of minority shareholders, who are considered most vulnerable relative to large block shareholders and managers. We also discuss why such a transition might take place and suggest the socio-emotional wealth of the founding families in their organizations as a possible explanation.