Advances in Business-Related Scientific Research Journal (ABSRJ) 
Volume 1 (2010), Number 1 
THE ROLE OF PERFORMANCE MEASUREMENT SYSTEMS IN 
FOSTERING TRUST WITHIN FAMILY BUSINESSES 
Paola Vola 
PhD, Researcher, Faculty of Economics - University of Eastern Piedmont 
Department of “Studi Impresa e Territorio”- Via Perrone 18, 28100 Novara 
Italy 
Ph: +39 339 2929390, Fax: +39 011 6706012 
vola@econ.unito.it 
Abstract 
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). 
Keywords: trust, family business, corporate governance, performance measurement systems 
Topic Groups: entrepreneurship, business strategy 
INTRODUCTION 
Trust is a critical source of competitive advantage for family firms 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 concept of trust is crucial in considering competitiveness, because it constitutes the 
basis of social capital: the latter is defined as a unique, not imitable, deeply embedded 
resource, extremely difficult for competitors to imitate (Dess and Shaw, 2001). 
From this point of view, sustaining and fostering trust in FBs can be a way to preserve 
competitive advantage. 
 
As shown by many scholars such as Sundaramurthy (2008) and Steier (2001), the initial 
trust inherent in the early stages is not sustained as the company grows and evolves. 
Thus, the mechanisms useful in maintaining and growing the initial level of trust that enable 
family business to flourish should be investigated. 
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Advances in Business-Related Scientific Research Journal (ABSRJ) 
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The aim of our work 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. 
 
In order to investigate operational mechanisms, we have to start by the consideration that 
they derive from corporate governance decisions: the aim of the governance system is to 
guarantee a balance between property and control, prescribing rules and codes of conduct, 
which define the way to divide the power and responsibility of management and decision 
making process. 
 
The expectations of family-managers and family members not involved into the business 
may vary and the clarification of these aspects is central in mitigating conflicts and sustaining 
trust. 
In this paper we assume that, in order to consider the need of preserving shareholders’ 
expectation (managers and non-managers), attention should go beyond formal governance 
rules (compliance) (Busco, Giovannoni and Riccaboni, 2007), taking into consideration 
mechanisms to monitor organizational performance. 
 
We discuss the importance of effective governance: the latter can be defined as a balanced 
combination of structures, plans, policies, rules and decision making power that enables 
ownership group to play a constructive role in the FB system. 
 
While we focus our attention on this mechanisms, such as performance measurement 
systems, we will not analyze governance choices, such as board of directors composition, 
shareholders’ meetings, etc. 
 
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. 
 
Thanks to performance measurement systems, FBs can exploit the competitive advantage of 
strong trustworthiness; this sustained level of trust may indeed be a crucial basis for social 
capital, central in preserving FBs’ competitiveness. 
THEORETICAL FRAMEWORK 
Exploring the concept of familiness 
In most countries FBs account for major share of business, employ a significant portion of 
total employees and record significant amount of investments, accumulated capital and 
added value: different studies underline the importance of FBs across different countries, 
such as Western Europe (Maury, 2005), Spain (Gallo and Estapè, 1992, 1994), Germany 
(Riedel, 1994), United States (Astrachan and Kolenko, 1994), Australia (Owens, 1994) and 
Chile (Martinez, 1994). 
 
In spite of the significant role played by FB in the global economy, researchers still don’t 
converge on a unique definition of FB, but propose different definitions depending on the 
framework used to investigate FBs, such as strategic management, organizational theory, 
economics, sociology, anthropology, etc. 
 
The matter of definition is crucial, especially with reference to researches on FBs: Westhead 
and Cowling (1998) consider how definitions of FBs affect comparative studies of family 
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versus NFBs; when they split a sample into FBs and NFBs on the basis of seven different 
definitions, they obtain very different results. 
 
The importance of this construct has been highlighted by Pearson, Carr and Shaw (2008) 
who state that identification of a unique definition of familiness is both groundbreaking and 
important for family business research. 
 
The component of family involvement is a necessary but not sufficient condition for defining 
FB: infact, only if family involvement is directed toward behaviours that produce certain 
distinctiveness, it can be considered FB. 
 
According to the governance perspective (Corbetta, 2005, Montemerlo, 2000, Corbetta, 
1995), especially with reference to the kinship degree, we can classify FB differently in 
presence of (1) a controlling owner – usually the founder, (2) a sibling partnership between 
brothers and sisters , or (3) a cousin consortium (see also Ward and Dolan, 1998). 
 
Another classification is based on the number of shareholders or families involved and 
considers, for example (a) close firms – with one family at the first or second generation or 
more than on family at the first generation and (b) wide firms –  usually one family after the 
third generation, with a great number of members. 
 
Many traditional definitions of family business are focused on the combination of some 
components of family’s involvement in the business, such as ownership, management and 
trans-generational succession (Chua et alii, 1999, Chrisman et alii, 2005); these authors 
argue that a positive contribution by the family leads to distinctive familiness which can 
serve as a source of competitive advantage for the family firm. 
 
Villalonga and Amit (2006) outline that most definitions include at least three dimensions: 
one or several families hold a significant part of the capital; family members retain significant 
control over the company, which depends on the distribution of capital and voting rights 
among non family shareholders, and family members hold top management positions. 
 
The influence of family is also related to the level of family control; in this sense, Anderson 
and Reeb (2003) make a distinction between active and passive family control. 
 
The crucial point in finding out a definition for FBs is that it should be able to explain why 
family involvement in a business leads to behaviours and performances that might be 
different from the ones of NFBs (Lee, 2006, Moscetello, 1990). 
 
All this conducts to investigate FBs behaviour to catch the essence of family business and 
thus understand how they perform. 
 
FB seems to be a complex aggregate of systemic factors that impact on strategy processes 
and firm performance; Habbershon and Williams (1999) state that these unique family 
influences can be described through the resources and capabilities peculiar of the firms.  
In particular, Habbershon et alii (2003) identifies the main elements that interact in a family 
business system as: 
 
- the controlling family unit – representing the historical background, traditions and life 
cycle of the family; 
- the business entity – representing the strategies and structures utilized to generate 
wealth; 
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Advances in Business-Related Scientific Research Journal (ABSRJ) 
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- the individual members – representing the interests, skills and life stage of the 
participating family’s owner/managers. 
 
The pool of resources and capabilities generated, familiness, it’s hard to duplicate because it 
represents unique, inseparable, synergistic resources and capabilities arising from family 
involvement and interaction. Hoffman, Hoelscher and Sorenson (2006) introduce the concept 
of family capital: it is an asset that derives from the family ties existing in family firms. 
Resource Based View (RBV) has the potential to help identify the resources and capabilities 
that make family firms unique and, through their interaction, allow them to develop family-
based competitive advantage. 
 
This approach has been successfully used to explain long run differences in firm’s 
performance that can’t be attribute to economic conditions or industry, as Porter (1980) 
stated in his environmental models.  
 
In particular, he assured that: 
 
- firms in an industry are identical in terms of strategically relevant resources they 
control and strategies they adopt; 
- resource heterogeneity developed in an industry is short-lived because resources are 
highly mobile. 
 
The RBV framework, instead, states that firms in an industry are heterogeneous and 
considers the intangible bundle of various resources as the cause of competitive advantage 
and underlines that firm’s resources are not perfectly mobile across firms (Barney, 1991). 
 
So a firm can sustain its competitive advantage depending on the inimitable nature of its 
resources, including, for example, both physical and intangible assets, individual and 
corporate skills, organizational processes and firm attributes. 
 
FBs have unique characteristics that play an important role in their performance: through 
RBV it’s possible to delineate the competitive capabilities of family companies (Habbershon, 
Williams, 1999). 
 
Literature on RBV (Barney, 1991; Grant, 1991) usually identifies four main categories for 
resources: 
 
- physical capital resources; 
- human capital resources; 
- organizational capital resources; 
- process capital resources. 
 
In each of these four categories family business literature has included many family business 
characteristics that constitute the potential of FBs (Habbershon, Williams, 1999). 
 
At this point it’s crucial to recognize under which conditions these elements can provide 
competitive advantage: the interaction between the family, its individual members and the 
business creates that bundle of resources peculiar of each firm that constitutes “familiness”. 
The RBV can bring two bodies of literature – strategic management and family firm theories 
– together into one comprehensive framework to investigate FBs’ performance. 
 
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Advances in Business-Related Scientific Research Journal (ABSRJ) 
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Some researchers (Habbershon, 2003; Chua et alii, 1999), in order to investigate FBs, start 
from the evidence that this kind of companies exists because of the reciprocal economic and 
non economic value created through the combination of family and business system; in 
particular the sustainability of a family business is a function of both business success and 
family functionality (Olson et alii, 2003). 
 
As shown by SFB Model (Sustainable Family Business Model), family business are 
complicated by dynamic relationships within the owing family: the sustainability of a family 
business is a function of both business success and family functionality (Stafford et alii, 
1999). 
Family and business interaction: social capital as source of competitiveness 
Family businesses are characterized by the interaction of two complex systems, the family 
and the business, that are dominated by different rules and values, with mutual influences 
(Corbetta and Salvato, 2004; Chrisman, Sharma and Taggar, 2007). 
 
Family is often labelled as the emotional arena and business is labelled as the ration arena; 
principles such as equality, members’ protection and support, saving, traditions, sentimental 
feelings, shared values, dominate family, while business should be managed according to 
economic and financial standards, rational decision making processes and flexibility. 
 
The potential for conflict is high in family firm because several systems overlap as the family 
business grows (Tagiuri and Davis, 1996): family tasks and values are often placed in 
opposition to those of the business. 
 
The relationship between family and business differs as the life stage of the business evolves 
(Ward, 1997): strategic changes represents the most critical phases because they require 
decisions about leadership, involvement into the business of different members of the family, 
their compensation, roles’ attribution, etc. 
 
Family usually tend to uniform members’ treatment in order to avoid conflicts, evoking 
equality values: in a family firm context, this lack of meritocracy can cause managerial 
problems on the business side (Tillet, 2001). 
 
Family tension is not helpful in achieving success for either the family or the business: 
productivity declines in presence of family tension. 
Ward (2004) notes that successful family business recognize that predictable conflicts are 
likely to arise and suggests dealing with them even before they become real. 
 
Compensation, entry into the business and succession are all such decisions that should be 
given attention before they become personal and emotional. In this sense, particular 
attention should be paid to social capital, which involves the relationship between individuals 
or organizations and is considered a specific source of competitive advantage for family 
firms. 
 
Leana and Van Buren (1999) define social capital from an organizational perspective, as the 
character of social relationships within the organization realized through members’ levels of 
collective goal orientation and shared trust. 
Social capital is by definition socially complex, related to norms, values, purpose and trust 
that exist in the family firm; it is considered a deeply embedded resource, tacit in nature and 
extremely difficult for competitors to imitate (Dess and Shaw, 2001). 
 
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According to Nahapiet and Ghosal (1998), social capital is defined as “the sum of the actual 
and potential resources embedded within, available through and derived from the network of 
relationships possessed by an individual or social unit” and is conceptualized as consisting of 
three dimensions – structural, cognitive and relational. 
 
The latter dimension provides necessary elements to link firm resources and capabilities: 
trust is an essential component of effective collaboration within the firm. 
 
The type of trust that exists in the firm has implications for the linkage between trust, 
organizational processes and capabilities. 
Trust as organizing principle: the basis of social capital 
Trust is a concept which has been widely explored in the management and organization 
literatures (Gambetta, 1988; Tyler and Kramer, 1996; Nooteboom, 2002). 
 
At a general level trust can be defined as the willingness to accept vulnerability based on 
positive expectations about another’s intentions or behaviors (Mayer et alii, 1995, Rousseau 
et alii, 1998); the concept of trust implies a preference for a stable and predictable 
environment. 
 
For our purpose, we will assume the viewpoint of some scholars (Mc Evily, Perrone, Zaheer, 
2003) that conceptualize trust as an organizing principle, investigating how it affects 
organizations. They define trust as expectation or intention because they are most interested 
in explaining the behavioral manifestations of trust that shape and influence organizing. 
 
It’s important to consider the two main forms of trust: a confidence in the reliability of (a) 
specific individuals (personal trust) and (b) abstract systems (system trust). Importantly, 
these two forms of trust are often interdependent, as individuals are usually the access 
points for the systems and through face-to-face contacts such individuals can absorb risks by 
assuring potential users that the systems are trustworthy (Bachmann, 2001).  
 
In an organizational context, expectations about another’s intentions or behaviors include 
competent role performance from those involved within a social relationship system.  
 
In addition to competence, trust is also based on behavioral integrity and benevolence of 
others; consequently, the view of trust includes of course an element of calculated 
expectation but also a non-calculative component, depending on bounded rationality. 
 
Trustworthiness plays a crucial role in making trust effective: trustworthiness implies being 
worthy of having trust placed in one (Barney and Hansen, 1994); without trustworthiness, 
trust is not sustainable and the alignment between the two factors determines the 
effectiveness of trust as an organizing principle. 
 
According to Mc Evily, Perrone and Zaheer, trust influences organizing through two main 
causal pathways: structuring and mobilizing. From structuring perspective, trust influences 
the stable and enduring interaction patterns within organizations (for example, by influencing 
the status and reputation of certain actors, trust affects their position within organizations); 
from mobilizing perspective, trust motivates actors to combine and coordinate resources 
toward the achievement of organizational goals. 
 
Trust has been characterized by two dimensions: fragile and resilient trust (Leana and Van 
Buren, 1999). Fragile trust is given in exchange for the possibility of fairly immediate 
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rewards. Fragile trust, that is more dependent on formal rules of allocation, doesn’t provide a 
strong link to the organizational capabilities of information flow and collective action. On the 
opposite, resilient trust is based on frequent social interaction with parties and involves their 
moral integrity. 
 
Trust is central to family business, in which a group of individuals affiliated with enterprise 
are connected through ancestry o familial ties, because their existence goes well beyond 
economical rationality. Even if family firms are fertile grounds for resilient trust, often it is 
replaced by an atmosphere of fragile trust (Steier, 2001).  
 
In fact trust, a competitive advantage for family business in early stage, often deteriorates as 
the firm grows. Thus it’s significant to investigate the mechanisms useful in maintaining and 
growing the initial level of trust that enable family business to flourish. 
 
Furthermore, it’s also central understanding how various structures and processes can 
through additional trust bases complement and sustain the initial relationship-based trust 
within family firms. 
 
The model proposed by Sundaramurthy (2008), the cycle o  trust within family firms, offers a 
contribution to understand how additional governance structures and processes can 
complement initial familial trust; specifically, the interweaving of competence trust and 
system trust into a sustaining cycle allows to understand how the different forms of trust 
need to co-exist to benefit the firm, also according to the firm’s life stage. 
f
 
The model is based on many  premises; the main ones are summarized as follow: 
 
- trust is a multidimensional  phenomenon with cognitive and affective aspects; 
- trust is dynamic, considering internal or external relationships (between family 
business and external business transactions) and the different phase of firm’s 
development; 
- the trust cycle is regenerative and the family firm will continue to revisit each of 
these three aspects of trust after the initial cycle. 
 
Family businesses in the early stages are characterized by an high level of trust that is 
relational and interpersonal (Corbetta and Salvato, 2004). Interpersonal trust, among 
members of the family, is based on kinship, familiarity, history and extended period of 
experience. 
 
This kind of trust takes a huge amount of time to build between strangers; in this sense 
family firms are unique because they begin with deep level of trust: the family constitutes 
the common identifying factor. 
 
Over time, as a family business grows, complexity on a number of dimensions is introduced; 
ownership and management of the family business may dispense among cousins and 
affiliates. Lack of deep knowledge of each other and common experiences can dilute the 
level of interpersonal trust: a need for additional cognitive trust bases arises. 
 
Competence trust represents the belief that parties entrusted with a job are not willing but 
capable of performing the job effectively. 
 
In a family context, those members who are not actively involved in the business seek to 
have confidence that those running the business system are capable of adapting to changing 
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environmental needs. Such confidence can be fostered when the family business system is 
open to outside influences, including the presence of non – family members on the board 
and encouraging family members employed in the business to gain work experiences outside 
the family firm (Gersick, Davis, McCollom Hampoton, and Landsberg, 1997). 
 
A third dimension, crucial into the cycle of trust in a family business, is system trust: this 
type of trust is impersonal and related to the trust individuals place in the system and 
processes. 
As the family business grows, interpersonal trust can not be sustained without confidence in 
the system that governs key interpersonal exchanges: clear and transparent rules can clarify 
roles, responsibilities and expectations of actors within family firm enhancing the potential 
for trust in the working of the family business system. 
 
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). 
Sustaining trust: effective corporate governance and performance measurement 
systems 
The governance of a FB is more complicated than for NFB because of the central role of the 
family that owns and leads the business: in a FB, the business, the family and the ownership 
group all need governance. 
 
Clear policies allow the integration of family values within clear boundaries and help establish 
trust in the family business system. In this sense, control systems are crucial to maintain and 
foster trust: starting from corporate governance’s decisions, the identification of operational 
mechanisms is required to translate the expectation of family shareholders without a 
managerial role into achievable objectives. 
 
The first step in approaching corporate governance’ decisions regards the definition of the 
following elements (e.g. Catturi, 2005; Comoli, 2002): 
 
a. roles (which family members will be involved into management, their responsibilities, 
their position, etc) and 
b. shareholders’ expectations, referred to long and short term firm’s goals, both 
measurable with financial and non financial performance indicators. 
 
According to the prevalence of family or business within the family business system, it’s 
possible to classify family firms into business or family oriented ones (Miglietta, 2009): this 
classification is significant with reference to the governance assets of family firms; 
consequently, when family prevails over business, all strategic organizational roles are 
covered by family members, while, when the focus is on business, family members can be 
involved or not into management, even if they are shareholders. 
Often, within family firms, we can observe the separation between ownership and control, 
owing to the fact that several members of the family may not be involved with the daily 
operations as they may choose different careers. 
 
Moreover, as successful FBs open themselves to external members, an additional 
stakeholder – the non-family employee – is involved in the management.  
 
Consequently, the first group of decisions to be taken is about the attribution of decisional 
power to those family members involved into the management (a-roles): generally, they will 
be members of the board of directors, with different competences. 
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In order to benefit from the interaction of family and business, it’s crucial to identify proper 
governance mechanisms to guarantee a balance between property and control. 
 
The expectations of family-manager and family members not involved into the business may 
vary and the clarification of these aspects is central in mitigating conflicts and sustaining 
trust. 
The formalization regards main firms’ goals setting (in the long and short term), financial and 
non-financial: this formalization is crucial because it derives from the strategic vision of the 
business and implies the commitment of family managers in achieving that objectives (b-
shareholders’ expectations); family members with no managerial responsibilities could have 
some difficulties in controlling business’s results. 
 
Corporate governance prescribes rules and codes of conduct, which define the way to divide 
the power and responsibility of management and decision making process; in other words, it 
represents the system, which regulates business executives to run business in a way to meet 
the interests of different shareholders as well as all stakeholders, such as creditors, workers, 
and consumers (Berle and Means, 1932); in a narrow sense, it means internal control system 
to control business management through proper mechanisms such as internal corporate 
body, such as general shareholders’ meeting, board of directors and auditors. 
 
According to Davis (2007), effective governance allows to manage issues within and across 
three overlapping groups: the family, the business and the ownership group. 
 
Figure 1: The “3-circle” model of FB 
Business Family 
Ownership 
 
 
 
 
 
 
 
 
 
 
 
Source: Davis, 2007 
 
The overlap among the three groups leads to different points of view among individuals 
depending their location in the three circles; different viewpoints must be reconciled in a 
respectful way to set direction for the company: effective governance should be helpful in 
 
- creating a suitable identity for the owners;  
- setting a sensible and motivating direction for the owners, business and family; 
- maintaining discipline among the owners to help the business achieve and purse 
important goals. 
 
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Effective governance can reduce tensions in FBs by clarifying family-business-ownership 
needs and managing the conversations needed to agree on goal, values and policies. 
Usually, all these issues are translated into governance structures, such as shareholders 
meetings, family council, board of directors. 
 
Considering the need of preserving shareholders’ expectation (managers and non-
managers), the attention should go beyond formal governance rules (compliance) (Busco, 
Giovannoni and Riccaboni, 2007), taking into consideration mechanisms to monitor 
organizational performance. In this way it’s possible to focus attention on effective 
governance: the latter can be defined as a balanced combination of structures, plans, 
policies, rules and decision making power that enables ownership group to play a 
constructive role in the FB system.  
 
Performance is itself an ambiguous term, with no simple definition, depending on the main 
strategic goals identified by shareholders; the term doesn’t specify to whom the organization 
is delivering its performance: at an organizational level we will assume that an organization 
that is performing well is one that is successfully attaining its objectives, implementing an 
appropriate strategy.  
 
If we consider governance, a crucial ingredient in making it effective is the performance 
measurement system (Coda, 2002). The designing of such systems, in fact, requires the 
formalization of shareholders’ expectations through the firm’s goal setting (both for the long 
and the short term), financial and non-financial: the formalization of objectives and the 
commitment of family managers in achieving them can increase the level of trust by family 
members non involved into management, because their have explicit mechanism to control 
business’s results. 
Any controlled system requires objectives and goals against which its performance can be 
assessed; specifically, according to Otley (1999), the main issues that need to be addressed 
in developing a framework for managing organizational performance can be the follow: 
 
1) what are the key objectives central to the organization’s overall future success? 
2) what strategies and plans has the organization adopted and what are the processes 
that it has decided will be required for it to a successful implementation? How does it 
measure the performance of these activities? 
3) how does the organization set appropriate performance targets for each measure? 
4) what reward managers gain by achieving the performance targets (or, on the 
opposite, what penalties will they suffer by failing to achieving them?) 
5) what are the information flows (feedback and feed-forward mechanism) that are 
necessary to enable the organization to learn from its experience and to adapt its 
behaviour? 
 
As outlined before, these questions are very closely related to shareholders’ expectations and 
involve management practises. Particularly, the first is concerned with the definition of goals 
and measurement of goal attainment, not just financially but also in term of meeting all 
shareholders’ expectations. 
 
The implementation of performance measurement systems should lead to effective 
governance, moving from compliance to accountability. While the respect of corporate 
governance standards and guidelines (compliance) is important because imposed by law, the 
commitment of managers (accountability) is crucial to achieve corporate objectives. 
 
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We must notice that compliance itself doesn’t guarantee effective governance: the respect of 
formal rules must be accompanied by performance measurement system, able to control 
goal attainment and preserve shareholders’ expectations. 
 
Busco, Giovannoni and Riccaboni (2007) outline the importance of integrated governance: 
the system is based not only on compliance, but also on performance and knowledge. 
 
The constant application of performance measurement systems, transparency, clear 
guidelines on key issues governing family and non – family members provides the foundation 
for trust, that, at this point, we can define sys em t ust. t r
 
As previously underlined, as the family business grows, interpersonal trust can not be 
sustained without confidence in the system that governs key interpersonal exchanges. 
Performance measurement systems create an additional cognitive base for trust: starting 
from the initial interpersonal trust (based on kinship, familiarity, history, etc), it’s possible to 
generate competence trust , that represents the belief that parties entrusted with a job are 
not willing but capable of performing the job effectively. 
 
In a family context, those members who are not actively involved in the business seek to 
have confidence that those running the business system are capable of adapting to changing 
environmental needs. Such confidence can be fostered when the family business system is 
open to outside influences, including the presence of non – family members on the board 
and encouraging family members employed in the business to gain work experiences outside 
the family firm. 
DISCUSSION 
Supported by researches on familiness and trust, in this paper we offer an integrated view 
on how supporting the initial level of FBs’ trust (competitive advantage for FBs) through 
operational mechanisms. 
 
When a FB grows, trust embedded in the family firm in the early stage of life is often 
replaced by conflict and strife. 
 
Furthermore, in a family context, those members who are not actively involved in 
management need to entrust those running the business: they have be capable of adapting 
to changing environmental needs and preserving all shareholders’ expectations. 
 
The expectations of family-manager and family members not involved into the business may 
vary and the clarification of these aspects is central in mitigating conflicts and sustaining 
trust. 
The concept of trust is referred to the belief that parties entrusted with a job are not willing 
but capable of performing the job effectively. 
In our work we assume that, in order to consider the need of preserving shareholders’ 
expectation (managers and non-managers), attention should go beyond formal governance 
rules (compliance), taking into consideration effective governance. 
 
The importance of effective governance is mainly connected to the need of reducing conflicts 
among shareholders. 
 
Performance measurement systems make governance effective because they represents 
mechanisms to monitor organizational performance, taking into consideration clear 
guidelines on key issue governing family and non-family members. 
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Advances in Business-Related Scientific Research Journal (ABSRJ) 
Volume 1 (2010), Number 1 
 
The designing of performance measurement systems, in fact, requires the formalization of 
shareholders’ expectations through the firm’s goal setting (both for the long and the short 
term), financial and non-financial: the formalization of objectives and the commitment of 
family managers in achieving them can increase the level of trust by family members non 
involved into management, because their have explicit mechanism to control business’s 
results. 
 
The constant application of performance measurement system, transparency, clear 
guidelines on key issues governing family and non – family members provides the foundation 
for system trust: from the initial interpersonal trust, based on kinship, familiarity, history, 
etc, it’s possible to move to competence trust, based on more cognitive basis. Competence 
trust is the type of trust needed when FBs grow and evolve. 
 
Thanks to performance measurement systems, FBs can exploit the competitive advantage of 
strong trustworthiness not only in the early life stage; this sustained level of trust may 
indeed be a crucial basis for social capital, central in preserving FBs’ competitiveness. 
 
From this point of view, sustaining and fostering trust in FBs can be a way to preserve 
competitive advantage. 
 
The purpose of this study was to bring performance measurement perspective and 
associated research on trust into the literature on family business. 
LIMITATION AND FURTHER RESEARCHES 
We need to address some limitations of our work that also offer future research 
opportunities. 
While we focus our attention on mechanisms, such as performance measurement systems, 
we didn’t investigate governance structures, such as board of directors composition, 
shareholders’ meetings, etc. 
 
Accordingly, future researches should investigate corporate governance structures and the 
implementations of performance measurement systems through empirical analysis.  
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