Performance Measurement Systems’ Role In Fostering Trust Within Family Businesses

Trust is a critical source of competitive advantage for family firms (FBs) and yet the initial trust embedded in the family firm is often replaced by conflict and strife; consequently, investigating how this resource can be sustained and fostered is significant. The aim of the paper is to identify which mechanisms can be useful in maintaining and growing the initial level of trust: clear and transparent processes can clarify responsibilities and expectations of family members and employees and engender system trust. Transparency of rules and operational mechanisms can be therefore translated into practice through corporate governance systems: specifically, effective governance will be based on performance measurement systems, taking into consideration clear guidelines on key issue governing family and non-family members, reducing conflicts among shareholders. Thus, FBs can exploit the competitive advantage of strong trustworthiness if they can leverage the interpersonal trust; this sustained level of trust may indeed be a key ingredient for emotional capital that is central to the continued success of family firms (Sharma, 2004).