ABSTRACT
Chinese private firms pose few agency problems in terms of the separation of ownership and control. The owner continues, in the great majority of cases, to play an active role in the management of the enterprise as its chief executive. As the business grows, however, there comes the point at which some delegation of managerial authority becomes unavoidable. With it comes the inevitable possibility of a rift in interests between the owner as principal and the manager as agent. As one might expect from the centrality of the family to Chinese society, this problem has been regularly resolved by appointing family members to key management positions. One medium-size private firm encountered in a survey of firms in Wenzhou typifies the pattern. With a turnover of 300 million yuan a year, it makes analytical devices for the chemical industry. ‘The father is the chairman of the board, the mother is the office manager, the eldest daughter is the general manager, the son is the vicegeneral manager, the second daughter is the financial manager, the second son-in-law is the sales manager, the sister-in-law is charge of general affairs in the office, and the nephew is the purchasing manager’ (International Finance Corporation 2000: 23).
