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How Reported Board Independence Overstates Actual Board Independence in Family Firms: A Methodological Concern

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  • Ansari, Iram Fatima
  • Goergen, Marc
  • Mira, Svetlana

Abstract

Despite successive codes of best practice of France, Germany and the UK highlighting the importance of the independence of non-executive directors, the codes tend to ignore the links that directors of family firms might have with the controlling shareholders. This is of particular concern for firms with concentrated family control as the risk of minority shareholder expropriation is greater for such firms. This paper proposes a new measure of board independence for family firms. Using a sample of listed French, German and UK family firms with an incumbent family CEO due for re-appointment or replacement over 2001-2010, we show that our measure of board independence is significantly lower than reported board independence. In contrast to reported board independence, our measure is a good predictor of the type of new CEO succeeding the incumbent CEO. Our results suggest that conventionally defined, or reported, board independence is biased and fails to provide investors, including minority shareholders, with an accurate measure of board independence. This conclusion has important policy implications for regulators and best practice in corporate governance.

Suggested Citation

  • Ansari, Iram Fatima & Goergen, Marc & Mira, Svetlana, 2018. "How Reported Board Independence Overstates Actual Board Independence in Family Firms: A Methodological Concern," Annals of Corporate Governance, now publishers, vol. 3(2), pages 81-183, March.
    • Handle: RePEc:now:jnlacg:109.00000018
    DOI: 10.1561/109.00000018
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    References listed on IDEAS

    as
    1. Hee-Jung Yeo & Christine Pochet & Alain Alcouffe, 2003. "CEO Reciprocal Interlocks in French Corporations," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 7(1), pages 87-108, March.
    2. Yeh, Yin-Hua & Woidtke, Tracie, 2005. "Commitment or entrenchment?: Controlling shareholders and board composition," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1857-1885, July.
    3. repec:bla:jfinan:v:59:y:2004:i:5:p:2281-2308 is not listed on IDEAS
    4. Jeffrey Zwiebel, 1995. "Block Investment and Partial Benefits of Corporate Control," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(2), pages 161-185.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Board independence; CEO succession; Family ownership;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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