Concentrated Ownership, Socio-emotional Wealth and the 'Third Possibility': Bringing Society Back In

Abstract

Concentrated ownership implies greater alignment between ownership and control, mitigating the agency problem. However it may also engender governance challenges such as funds appropriation through related party transactions and the oppression of minority shareholders, especially in the context of weak legal systems. We draw from legal theory (the tradeoff controlling shareholder model and private benefits of control) and from organization theory (socioemotional wealth), to suggest that concentrated ownership can be beneficial in both robust and weak legal systems for different reasons. We advance theory on the effects of controlling shareholders and suggest that the longer-term outlook associated with engaged concentrated ownership can aid the shift of the corporation towards Berle and Means’ (1932: 355) “third possibility” of corporations serving the interests of not just the stockholders or management but also of society.

Keywords: Corporate governance, concentrated ownership, socio-emotional wealth, legal theory