Side Too, The Family Business Group Governance Model Study

Ningbo Fotile Kitchenware Co., Ltd. was faced with the puzzled problem in the process of governance transformation: should Fotile maintain family governance , or should Fotile adopt the governance of specialization? The existing literatures just simply take the governance of specialization as the best governance. Hence, they focus on the transformation into the specialized governance and enlighten the disadvantages of family governance. They all lost light of the advantages of family business that sounds great under the interior and outer surroundings of current period in our country.Fotile was a family business with a highly familying context in its early development period. Fotile had achieved great development depending on the advantages of family governance. However, as Fotile developed, many disadvantages which derived from family governance appeared and hindered Fotile's further development. Therefore, Fotile must remove these obstacles so as to get further development.There exist knowledge costs and agency costs in the family business group. Knowledge costs are decreasing with the degree of specialization of family business group, while agency costs are increasing with the degree of specialization of family business group. The governance model which can minimize knowledge costs is specialization-dominating model; the governance model which can minimize agency costs is family-dominating model. Co-governance can minimize the institutional costs, which are the sum of knowledge costs and agency costs. In thissense, co-governance model is the best model for family business group.In fact, the governance model that Fotile adopts at present is co-governance (semi-specialization) model. Under this model, Fotile keep a good operation. Hence, the model is recommendable to other family businesses. However, Fotile should depart from the situation of shares' being concentrated, and make a good institutional selection of a manager in the future.Practically, the best governance model is the co-governance (semi-operation) model. As for the co-operation model, the necessary tasks are, on the one hand, minimizing the knowledge costs in family business group, on the other hand, minimizing the agency costs in family business group. In other words, perfecting co-governance model should be taken on through minimizing institutional costs.