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

Iram Fatima Ansari, Marc Goergen, Svetlana Mira

Research output: Contribution to journalArticle

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.
Original languageEnglish
Pages (from-to)81
Number of pages183
JournalAnnals of Corporate Governance
Volume3
Issue number2
DOIs
Publication statusPublished - Mar 28 2018

Fingerprint

Family firms
Board independence
Chief executive officer
Best practice
Incumbents
Minority shareholders
Germany
Corporate governance
Expropriation
Investors
Policy implications
France
Non-executive directors
Controlling shareholders
Family control
Replacement
Predictors

Keywords

  • corporate governance
  • Corporate finances
  • Corporate control and ownership
  • Family ownership
  • Family firms
  • Board independence
  • CEO succession

Cite this

How Reported Board Independence Overstates Actual Board Independence in Family Firms: A Methodological Concern. / Ansari, Iram Fatima; Goergen, Marc; Mira, Svetlana.

In: Annals of Corporate Governance, Vol. 3, No. 2, 28.03.2018, p. 81.

Research output: Contribution to journalArticle

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