Family power in the boardroom: Is it counterbalanced by other large shareholders?

ABSTRACT

This study analyses how the existence, the number, their ownership, and the identity of other large shareholders coexisting with families, influence disproportionate family board power of listed firms. Using a database of the Spanish market over an 8-year period, the results show that the number of other large shareholders and their relative ownership over the family increase disproportionate family board power in the boardroom. Moreover, when the other large shareholders have more ownership than the family, disproportionate family board representation increases. The findings also highlight the significance of the other large shareholders’ identity. Foreign investors reduce disproportionate family board power, while it does not appear to be affected by families and individuals or institutional investors. In sum, this research confirms the use of disproportionate board power by families as a control-enhancing mechanism to entrench family power on the board and protect their socioemotional wealth.

KEYWORDS:

• Family firms
• corporate governance
• multiple large shareholders
• shareholders’ disproportionate board representation
• control-enhancing mechanisms
• socioemotional wealth

JEL CLASSIFICATION:

• G32
• G34

Acknowlegments

The authors wish to thank the very constructive comments received along the revision process that have contribute significantly to improve the content of the article.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. This Action plan brought in considerable changes to corporate governance issues. For example, Directive 2017/828 encourages more long-term engagement of shareholders; the 2018 Commission Implementation Regulation (EU) 2018/lays down minimum requirements regarding shareholder identification, the transmission of information and facilitating the exercise of shareholders’ rights. Rules relating to Banks and systemic investment firms were laid out in the Capital Requirement Directive (Directive 2013/36/EU) and the Capital Requirements Regulation (Regulation 5757/2013). Rules on corporate governance and remuneration for non-systemic investment firms are part of the Investment Firms Directive (Directive 2019/2034) and the Investment Firms Regulation (Regulation 2019/2033).

2. There is little agreement in the literature about what defines a large shareholder. A 10% blockholding is used by Faccio and Lang (2002), Laeven and Levine (2008) and Maury and Pajuste (2005). Others, such as Holderness (2009), use 5%. We opt to use 3% in line with the Spanish Supervisory Authority’s (CNMV) definition.

3. Although there are several combinations with regard to shareholder identity, as the typology is so huge, we have focused on those extreme cases in which all significant owners apart from the family share the same identity.

4. Nevertheless, it is necessary to consider that apart from this requirement each dependent variable can have some additional potential regressors.

Additional information

Funding

The work was supported by the Ministry of Science and Innovation [PID2019-105140RB-I00] and Ministry of Science, Innovation and Universities (Spain) [RTI2018-097447-B-100].