Families wield control over the firms they own in multiple ways. Most family firms, even the largest ones, have few shareholders from outside the family. In 80% of firms, both the CEO and the chairman of the board of directors belong to the controlling family, and the family occupies the majority of board seats. Finally, family firms are more likely to have females CEOs and board members than nonfamily firms.
By definition, family firms have concentrated ownership (the CCGR data base defines family firms as those where at least 50% of the equity capital is provided by one family).
Family firms cover a wide range of sizes, from small single-owner entities to large firms active on international markets. As a firm grows, it becomes harder for the controlling family to keep providing equity to retain its influence, and large firms have often raised capital multiple investors.
A firm's size, therefore, may affect the family's ability to influence its governance. However, the family usually remains active even in the largest family firms, as documented below.
The graphs below rank family firms into ten deciles based on their sales in 2019. Group 1 represents the 10% firms with the smallest amount of sales, and group 10 represents the 10% firms with the largest sales.
The ownership stake of the controlling family decreases with firm size, but the decrease is relatively small. In fact, 70% of the firms in the largest decile have no nonfamily owners at all:
Unpacking the family’s ownership stake, the controlling family consists of just one person in most firms. However, as firm size increases, the average number of family owners also goes up:
Further details on the relationship between majority and minority shareholders can be found here.
By construction, the controlling family owns at least 50% of the equity in their firms. This implies that the family can decide whether it wants to take governance positions in the firm, in addition to its ownership stake.
Below we show that families are usually deeply involved in the governance of their firms. In the majority of firms, the family is represented on the board of directors and in the management team.
In four out of five firms, both the CEO and the chair of the board of directors comes form the controlling family. In 12% of firms, the family controls only the chair position, and in 7% of firms, the family controls only the CEO position. Very few firms have neither a family CEO nor a family chair.
What are the characteristics of firms with a deep family involvement in governance? Families are more likely to take the CEO and chair position in firms where it owns a larger stake, in firms that are more profitable, smaller, and less risky. Wheter a firm is located in a city or in a district, however, makes little difference to the family's involvement.
Note: OWNERSHIP is the ultimate equity fraction held by the firm's largest family by ownership. PERFORMANCE is operating earnings after taxes divided by total assets averaged over the past three years, while SIZE is real sales in millions of NOK as of year end 2013.
The positive relationship between family involvement, ownership, and firm performance, raises an important question about causality: do families choose to get more involved because the firm is more profitable, or is the firm more profitable as a result of closer family involvement?
In our study, we find that causality goes both ways. If a firm is more profitable (as measured by return on assets), the family is more likely to take on the CEO and chair positions. However, it is also true that higher involvement by the controlling family increases the performance of the firm.
To what extent is the controlling family represented on the board of directors? Typically, the vast majority of directors are family members, although nonfamily members directors are usually present in larger firms:
As the size of the firm increases, the probability that nonfamily shareholders sit on the board increases significantly:
The proportion of women on the board is generally higher in family firms than in nonfamily firms:
The proportion of female CEOs in family firms is also higher than in nonfamily firms, and has been gradually increasing over time:
