Guests at the Table?: Independent Directors in Family-Influenced Public Companies

Posted: 12 Dec 2007

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Abstract

By some measures, family-controlled companies account for about a third of large public companies in the United States. Public companies that retain characteristics of family firms pose a series of intriguing questions about corporate governance, in particular the roles and duties of directors, that are surprisingly underexplored in legal scholarship. Although concentrated ownership is more significant in many capital markets outside the United States, recent examples of governance questions associated with publicly-held family companies are numerous. In such companies, shareholders who are members of the founding family often have perspectives and interests that diverge from those of non-family public shareholders.

The paper focuses on directors who are independent of both management and the controlling family and identifies a set of functions that they are uniquely situated to fulfill. Independent directors are the sole actors at the highest level of firm governance who have the capacity to bring detached judgment to bear in resolving difficult questions that implicate family ties as well as business necessity, including management succession and external threats to the firm's position and separate existence. The paper relies on a series of recent empirical studies that quantify the incidence of family-controlled public companies, examine their performance relative to other public companies, and identify characteristics that are associated with better or worse performance. The paper also relies on reported cases to furnish concrete illustrations of variations in independent directors' effectiveness.

Suggested Citation

DeMott, Deborah, Guests at the Table?: Independent Directors in Family-Influenced Public Companies. Journal of Corporation Law, Vol. 33, No. 4, 2008, Duke Law School Legal Studies Paper No. 165, Available at SSRN: https://ssrn.com/abstract=1070142

Deborah DeMott (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7082 (Phone)
919-613-7231 (Fax)

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