Governance Systems in Family SMEs: The Substitution Effects between Family Councils and Corporate Governance Mechanisms

The main objective of this paper is to explore the role of family councils vis-a-vis corporate governance mechanisms. Particularly, the paper explores whether family councils perform only their distinctive family governance role or if they also substitute for the roles performed by corporate governance control mechanisms. Based on a sample of 243 Italian family SMEs, our research findings show that the family council partially substitutes the shareholders' meeting and the board of directors in playing their respective corporate governance roles of ownership and monitoring. These findings are interpreted in the light of both agency and relational perspectives.