Board Composition: Balancing Family Influence in S&P 500 Firms

We examine the mechanisms used to limit expropriation of firm wealth by large shareholders among S&P 500 firms with founding-family ownership. Consistent with agency theory, we find that the most valuable public firms are those in which independent directors balance family board representation....

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Bibliographic Details
Published inAdministrative science quarterly Vol. 49; no. 2; pp. 209 - 237
Main Authors Anderson, Ronald C., Reeb, David M.
Format Journal Article
LanguageEnglish
Published Los Angeles, CA Cornell University Samuel Curtis Johnson Graduate School of Management 01.06.2004
SAGE Publications
SAGE PUBLICATIONS, INC
Subjects
Administrative science
Agency theory
Boards of directors
Business management
Business structures
Business studies
Chief executive officers
Comparative analysis
Corporate governance
Directors
Expropriation
Family firms
Family members
Family owned businesses
Family structure
Financial performance
Firm theory
Investors
Musical agency
Opportunistic behavior
Outside directors
Ownership and control
Scandals
Shareholders
State court decisions
Stockholders
Studies
United States > US
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Summary:We examine the mechanisms used to limit expropriation of firm wealth by large shareholders among S&P 500 firms with founding-family ownership. Consistent with agency theory, we find that the most valuable public firms are those in which independent directors balance family board representation. In contrast, in firms with continued founding-family ownership and relatively few independent directors, firm performance is significantly worse than in non-family firms. We also find that a moderate family board presence provides substantial benefits to the firm. Additional tests suggest that families often seek to minimize the presence of independent directors, while outside shareholders seek independent director representation. These findings highlight the importance of independent directors in mitigating conflicts between shareholder groups and imply that the interests of minority investors are best protected when, through independent directors, they have power relative to family shareholders. We argue that expanding the discussion beyond manager-shareholder conflicts to include conflicts between shareholder groups provides a richer setting in which to explore corporate governance and the balance of power in U.S. firms.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
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ISSN:0001-8392
1930-3815
DOI:10.2307/4131472