Family-Controlled Corporations: Defining Corporate Governance Best Practices to Add Firm Value

Abstract:     
European family-controlled public companies tend to perform less well in the stock market than their American counterparts. Also, while more and more investment funds that focus on family-firm opportunities are being formed in the United States, data indicates that institutional investors remain somewhat reluctant to invest in continental European family-controlled businesses. These trends suggest that best practices followed by family firms in the United States may provide helpful examples for similar enterprises in Europe.

The paper touches on the major trends in the area of corporate governance for family-controlled corporations, and explores the correlations between such trends and firm value. A comparison of best practices in the United States and continental Europe is made with respect to the following: (a) effective leadership succession planning; (b) participation in an efficient market for corporate control; (c) partnership with a strategic institutional investor; and (d) improvements in the relation with minority shareholders.

The paper is partly based on deliberations made at the June 2005 European Council on Corporate Governance and Board Effectiveness, hosted by the Swedish Corporate Governance Forum in Stockholm.

Number of Pages in PDF File: 8

Keywords: family, family control, concentrated ownership, succession, corporate control, institutional investor, investor relations, corporate governance

JEL Classification: G2, G24, G3, G32, G34, G38

working papers series