Trust And Family Enterprise Governance

Family enterprise has been playing important parts in global economics. It is still the most popular form of business organization widely used in developing and developed countries. Since reform and opening up in 80's, 20th century, there have emerged lots of private enterprises with strong strength in China, most of which are family enterprise. Though Chinese family enterprise have experience a quick development since the very beginning, they are confronted with a big problem. It is because that they have difficulties in integrating social resources especially human resources despite the family circle. The deep reason lies in the lack of trust resources in family enterprise, which prevents family enterprise indraughting non-family senior executives. 'Trust' has become the key to developing the family enterprise.This article makes a systematic research on 'trust' in family enterprise. It analyses the correlation between trust and family enterprise based on the domestic and home documents. Firstly, it discusses the basic meaning of trust related to family enterprise. It classifies it as knowledge-based trust, identification-based trust and institution-based trust. Secondly, the article analyzes the relationship between trust, transaction cost and the development of family enterprise. Just like that trust could promote the economic development, it also the same to the family enterprises. The main function of trust in firms shows to guarantee the steady development and affect the development speed. The transaction cost changes when family enterprise develops, therefore, the type of trust also changes. Knowledge-based trust is built among families, it appears during the initial period, identification-based trust is built among friends and appears during the developing period and institution-based trust is build among strangers and appears during developed period. Thirdly, the article analyze why family enterprises chose different types of trust in different phases through a math model.The article makes empirical analysis based on theory analysis. The author made a survey covered 40 family enterprises in Yongkang, Zhejiang Province, and finally drawled two conclusions. One is that family enterprise follows the rule that the type of trust in family enterprise extended while the cooperation develops. The other is that the trust in family enterprise faces with contradictory state. Though trust extends, the owners could not trust non-family senior executives totally.The article finally analyzes the reasons for the contradictory state. There are several reasons. First, it is the imperfect incentive mechanism in family enterprises and social institution increases the cost to trust nonfamily members. Besides, the traditional culture makes people in China tend to trust fewer nonfamily members. Therefore, the author suggest as follows: First, the family enterprise should build a new governance structure, which can not only protect the corporations' rights and interests but also arouse the enthusiasm of the nonfamily members. Second, the corporation should build an effective incentive mechanism, for instance, building a reasonable generation inheritance system, authorization mechanism and compensation incentive. Third, the owners should improve themselves, including culture accomplishment, and honest. And last, the legal construction of external environment should be strengthened. Firstly, we should build legal construction to protect the legal private property. Secondly, we should perfect the intermediary organization for professional manager market. Thirdly, we should build the evaluation system for professional manager to improve the identifiability of professional manager.