Family Blockholders and Control of the Board of Directors

Abstract

It is well-known that among family firms, some families are active in their participation in board management, having a family member serving as either CEO or chairman of the corporate board, or both. In other family firms, members of the family occupy neither of these roles, though maintaining family representation on the corporate board. Among families involved in board management, and particularly so for firms with a founder-CEO, through a combination of family, affiliated and employee directors, the family may control the votes of the board. I derive a theoretical model of family control and then use the model to empirically assess the impact of active family management and control of board votes on family firm value. Theoretically, I find that by controlling the nominating process and rewards to independent insiders, the family can control the vote whether or not they have a voting majority on the board. I find qualified empirical support for the theoretical analysis. I find no empirical support for the assertion that family control detracts from firm value.

Keywords: family firms, board of directors, nominating committee