Family Power in the Boardroom: The Counterbalance 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 socio-emotional wealth.

Keywords: family firms, corporate governance, multiple large shareholders, shareholders’ disproportionate board representation, control-enhancing mechanisms, socioemotional wealth

JEL Classification: G3