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.