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Board independence negatively impacts family firms
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Contact:
Peter Klein, SFU Business, 604.268.7922; pklein@sfu.ca
Daniel Shapiro, SFU Business, 604.291.5155; sshapiro@sfu.ca
Diane Luckow, Media & PR, 604.291.3210
Peter Klein, SFU Business, 604.268.7922; pklein@sfu.ca
Daniel Shapiro, SFU Business, 604.291.5155; sshapiro@sfu.ca
Diane Luckow, Media & PR, 604.291.3210
December 8, 2003
Canadian entrepreneurs who complain that their opinions fall on deaf ears during meetings with their board of directors will be interested in the results of a new study on corporate governance.
SFU Business associate professor and RBC Investments Fellow Peter Klein, and Daniel Shapiro, the Dennis Culver EMBA Alumni Professor at SFU, recently examined the relationship between good corporate governance practices and performance in Canadian family-owned and non-family-owned firms. They reviewed 270 of the largest Canadian companies listed in the Report on Business 2002 index of Canadian corporate governance. For the most part, the results indicate that good governance practices such as shareholder rights and disclosure practices have a positive influence on the performance of family-owned firms.
Surprisingly, however, the duo discovered that the more outside directors there are on a family firm’s board, the worse the firm’s performance.
"We expected to find that board independence was positively related to performance but in fact, we found a negative relationship," says Klein, who is academic director for SFU Business’ Global Asset and Wealth Management MBA program. "Family firms with largely independent boards have less market value compared to book value than those firms with more related directors."
"Entrepreneurs often claim that it’s their brilliance that’s responsible for performance and that the board should give them their way in performance-related initiatives," says Klein. "We find some empirical validation of that."
The study was funded by an RBC Investments fellowship and the Dennis Culver EMBA Alumni Professorship.
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SFU Business associate professor and RBC Investments Fellow Peter Klein, and Daniel Shapiro, the Dennis Culver EMBA Alumni Professor at SFU, recently examined the relationship between good corporate governance practices and performance in Canadian family-owned and non-family-owned firms. They reviewed 270 of the largest Canadian companies listed in the Report on Business 2002 index of Canadian corporate governance. For the most part, the results indicate that good governance practices such as shareholder rights and disclosure practices have a positive influence on the performance of family-owned firms.
Surprisingly, however, the duo discovered that the more outside directors there are on a family firm’s board, the worse the firm’s performance.
"We expected to find that board independence was positively related to performance but in fact, we found a negative relationship," says Klein, who is academic director for SFU Business’ Global Asset and Wealth Management MBA program. "Family firms with largely independent boards have less market value compared to book value than those firms with more related directors."
"Entrepreneurs often claim that it’s their brilliance that’s responsible for performance and that the board should give them their way in performance-related initiatives," says Klein. "We find some empirical validation of that."
The study was funded by an RBC Investments fellowship and the Dennis Culver EMBA Alumni Professorship.
-30-