Bringing owners back on board: A review of the role of ownership type in board governance

• Author: Angel Saz‐Carranza,Yuliya Ponomareva,Ryan Federo,Carlos Losada,Ruth V. Aguilera
• DOI: http://doi.org/10.1111/corg.12346
• Published date: 01 November 2020
• Date: 01 November 2020

REVIEW ARTICLE

Bringing owners back on board: A review of the role of

ownership type in board governance

Ryan Federo

1

| Yuliya Ponomareva

2

| Ruth V. Aguilera

3

|

Angel Saz-Carranza

4

| Carlos Losada

4

1

Department of Business Economics,

Universitat de les Illes Balears, Palma de

Mallorca, Spain

2

Department of Business, Universitat

Autònoma de Barcelona, Barcelona, Spain

3

D'Amore-McKim School of Business,

Northeastern University, Boston,

Massachusetts, USA

4

ESADE Business School, Ramon Llull

University, Barcelona, Spain

Correspondence

Yuliya Ponomareva, Department of Business,

Universitat Autònoma de Barcelona, Campus

de la UAB, Plaça Cívica, 08193, Bellaterra,

Barcelona, Spain.

Email: yulia.ponomareva@uab.cat

Funding information

Spanish Ministry of Economy, Industry and

Competitiveness, Grant/Award Number:

ECO2017-86305-C4-2-R; Catalan

Government, Grant/Award Number: 2017 SGR

1556 GLIGP; PwC España

Abstract

Research Question/Issue: In this comprehensive literature review, we synthesize

and analyze the current state of academic research regarding the relatively under-

studied relationship between the type of owners and board governance.

Research Findings/Insights: Our review of the existing literature at the intersection of

ownership and board governance research discusses how six distinct ownership

types—pertaining to family, lone founder, corporation, institutional investor, state,

and venture capitalist—shape board governance, defined as board structure, compo-

sition, and processes. We also uncover the influence of ownership type on board

functional performance (i.e., monitoring, resource provision, and strategic involve-

ment) and the implications of these owner–board relationships for a variety of firm

outcomes (related to performance and compliance).

Theoretical/Academic Implications: We present identifiable patterns in board gover-

nance and functional performance associated with each ownership type and their

respective implications for a wide range of firm outcomes. We then propose seven

core emerging themes that deserve further scholarly attention.

Practitioner/Policy Implications: Our analysis cautions against the application of the

“one-size-fits-all”best-practices approach in board governance advocated by policy

makers, scholars, and corporate governance activists and underscores the need to

consider the contingent effects of different owners' behaviors and interests in shap-

ing and assessing board governance.

KEYWORDS

Corporate governance, board of directors, literature review, ownership

1|INTRODUCTION

Most corporate governance scholars and policy makers would agree

that the board of directors (here onwards, board) is at the heart of

corporate governance. In fact, country codes of good governance

devote a lot of their clauses to the role of the boards, and so does cor-

porate law. Interestingly, a substantial number of review articles on

boards appear to be one-sided, primarily focusing on the board's rela-

tionship with the management (see Table SA1 for a list of existing

reviews on boards). However, the board's relationship with owners

and shareholders has received considerably less attention. Such one-

sided attention can be attributed to the implicit notion of shareholder

homogeneity assumed in agency theory (Jensen, 2001), which presup-

poses that investors are always “diversified and disinterested”

Received: 29 August 2019 Revised: 4 August 2020 Accepted: 14 September 2020

DOI: 10.1111/corg.12346

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reprodu ction in any medium,

provided the original work is properly cited.

© 2020 The Authors. Corporate Governance: An International Review published by John Wiley & Sons Ltd.

348 Corp Govern Int Rev. 2020;28:348–371.wileyonlinelibrary.com/journal/corg

(Braun, 2019, p. 1) and their objectives are limited to maximizing

returns on their capital (Monks & Minow, 2011).

This assumption goes in sharp contrast with the heterogeneity of

firm ownership worldwide, in which 79% of the equity in listed

corporations is held by a heterogeneous set of identifiable owners

such as families, corporations, institutional investors, and the state

(Organisation for Economic Co-operation and Development

[OECD], 2019). Business press outlets (e.g., Financial Times and The

Economist) echo such an increasingly dispersed and rapidly changing

portfolio of diverse owners and note that they are becoming more

involved in governance (e.g., Gual, 2020; Megaw, 2020). Furthermore,

recent developments in corporate governance codes have brought

owners to partake in activities that previously were exclusive for the

board (e.g., Yuan, Xiao, Milonas, & Zu, 2009), such as director and key

executive remuneration policy approval through the adoption of the

say-on-pay clause in several jurisdictions (e.g., the United Kingdom,

the United States, Chile, Italy, and Turkey) and proxy access. Overall,

the last decade has witnessed a re-emergence of an identifiable set of

owners who exercise increasing influence on how boards are

governed (i.e., board governance), particularly regarding three dimen-

sions: structure, composition, and processes.

As a result of this trend, the corporate governance field is chal-

lenging the assumption of owners as a homogeneous group by bring-

ing forward owners' diversity in terms of both incentives and capacity

to influence their corporations (Aguilera & Crespi-Cladera, 2016;

Desender, Aguilera, Crespi, & García-cestona, 2013). Some scholars

highlight salient distinctions among different types of owners such

as insiders versus outsiders, foreign versus domestic, blockholders

versus minority shareholders, transient versus dedicated ownership,

and pressure-sensitive versus pressure-resistant investors (e.g., An &

Zhang, 2013; Connelly, Hoskisson, Tihanyi, & Certo, 2010). More

recent studies further delineate ownership types by drawing attention

to lone founders (Cannella, Jones, & Withers, 2015), the state (Tihanyi

et al., 2019), shareholder activists (Chung & Talaulicar, 2010), and ven-

ture capitalists (VCs) (Garg, 2013) and by pointing out idiosyncrasies

among family owners (Ponomareva, Nordqvist, & Umans, 2019) and

their governance choices across national contexts (Aguilera, Talaulicar,

Chung, Jimenez, & Goel, 2015).

Given the role of boards as representatives of an increasingly het-

erogeneous group of shareholders (Monks& Minow, 2011), they serve

as the most important channelfor the owners to gain influence on their

firms (McCahery, Sautner, & Starks, 2016). Thus, it has become clear

that different types of owners have important implications for board

governance, reflectingdiscernable patternsin board structure, composi-

tion, and processes (Federo& Saz-Carranza, 2020) that ultimately affect

multiple firm outcomes (Connelly et al., 2010). Conversely, investors

might also be attracted to firms with specific board governance prac-

tices (Armstrong, Core, & Guay, 2014) aimed at capitalizing on such

adopted practices or changing them to unlock the latent value of the

target firms(Aguilera, Federo,& Ponomareva, 2020).

Despite thegrowing attention to the behaviors and interests of dif-

ferent owners, there is stillno study that synthesizes the presentknowl-

edge about how different types of firm owners shape board governance.

Current reviews on this subject examine ownership concentration

(Garcia-Meca & Sanchez-Ballesta,2010) or a single ownershiptype with

particular control rights, such as family or state owners (Bammens,

Voordeckers , & Van Gils, 2011; Hinna, D e Nito, & Mangia, 2010) . The

2019 OECD corporate governance factbook highlights that “the

traditional concepts of dispersed and concentrated ownership may no

longer be sufficient as a basisfor understanding andadapting corporate

governance frameworks to the more complex landscape of corporate

ownership structures in place around the world”(p. 17) because the

concept of ownership is three-pronged, comprising concentration,

control rights, and types. Thus, our study differs from prior reviews in

that we specifically focus on the influence of different types of identifi-

able owners on board governance and financial performance and the

implications of such boardinfluence on firm outcomes.

Our comprehensive literature review of 145 articles published in

international leading peer-reviewed journals between 1988 and 2019

shows that the field has reached adolescence, with high growth

potential. We identify six distinct ownership types, pertaining to fami-

lies, lone founders, corporations, institutional investors, the state, and

VCs, and compare the patterns in board structure,composition, and

processes attributed to each of the ownership types. Board structure

refers to the visible board design features such as size, independence,

committees, and CEO duality (Carter & Lorsch, 2003). Board composi-

tion pertains to the directors' characteristics, consisting of demo-

graphic and functional diversity, interlocks, and owner representation

(Johnson, Schnatterly, & Hill, 2013). Board processes denote the

boards' actions to fulfill their functions, which include the number of

board meetings, decision-making processes, effort norms and use of

skills, and cognitive conflict (Forbes & Milliken, 1999). We also exam-

ine how ownership type influences board functional performance,

which encompasses monitoring, resource provision, and strategic

involvement. We discuss how both type of owners and board gover-

nance have implications for multiple firm outcomes. Ultimately, our

review summarizes the present knowledge on the topic and proposes

seven core emerging themes that could inspire future research on the

role of ownership type in board governance.

Our review contributes to the development of board governance

research inthree important ways. First, we bring backthe focus on cor-

porate ownership by taking stock of the current literature regarding the

influence of owners on corporate boards. Second, we develop an

integrated framework synthesizing current insights about the role of

ownership type in board governance and its implications for firm

outcomes. Lastly, we propose an agenda to guide future research on the

topic that can help counterbalance the current one-si dedv iew on board

governance(and top managementteams) in the board literature.

2|METHODOLOGY

We conducted a multistep comprehensive literature review consisting

of three main phases, identification, screening, and assessment, as

illustrated in Figure 1. In the identification phase, we focused our ini-

tial search on the 50 top journals included in the Financial Times

FEDERO ET AL.349