Corporate Governance 4e

Christine A. Mallin

Chapter 5
Family-Owned Firms
 Learning objectives

• To be aware of the predominance of family

owned firms in many countries around the
world
• To understand the evolution of governance
structures in family owned firms

Mallin: Corporate Governance 4e

 Learning objectives

• To realise the benefits that good corporate

governance may bring to family owned firms
• To understand the problems that may be
faced by family-owned firms in implementing
good corporate governance

Mallin: Corporate Governance 4e

 Ownership structures

• The family firm is the dominant form of

ownership structure around the world
• Family firms can encompass sole traders,
partnerships, private companies, and public
companies.

Mallin: Corporate Governance 4e

 Ownership structures

• La Porta et al (1999) analysed ownership

structures in a number of countries around
the world and found that the family firm is
quite common.
• Legal system can be a key influence on the
type of ownership and control structure as a
civil law system does not give so much
protection of minority rights as a common law
system

Mallin: Corporate Governance 4e

 Family firms’ governance

• Possible stages:
- Family assembly
- Family council
- Advisory board
- Board of directors (including outside directors)

Mallin: Corporate Governance 4e

 Smaller quoted companies in the UK

• Many family firms are smaller quoted

companies either on the main market or on
the Alternative Investment Market (AIM)
• UK Corporate Governance Code (2010,
2012) recognizes that smaller companies
may find it harder to recruit and retain
independent non-executive directors

Mallin: Corporate Governance 4e

 Smaller quoted companies in the UK

• UK Corporate Governance Code (2010,

2012) states that for smaller companies
(those outside FTSE350), there should be at
least two independent non-executive
directors (rather than half the board as is the
requirement for larger companies)
• Quoted Companies Alliance (QCA) has
published guidance on corporate governance
for smaller companies

Mallin: Corporate Governance 4e

 Unlisted companies

• European Confederation of Directors’

Associations (ecoDa) issued the Corporate
Governance Guidance and Principles for
Unlisted Companies in Europe (2010)
• The above guidance was adapted by the
Institute of Directors (IoD) for the UK business
environment.
• The vast majority of UK registered companies
are SMEs or start-up companies which remain
under the control of the founder/founding family.

Mallin: Corporate Governance 4e