HKUST Business School Magazine

Family ownership is one of the most prevalent forms of corporate governance. Taking the largest 30 firms in terms of market value on the Hong Kong stock exchange as an example, more than 50% of them are controlled by their founder or founder descendants. Similar observations apply to the Taiwan stock exchange. Family firms are not only popular in the Greater China region but also in Western countries. Even in the U.S., contrary to traditional belief, family ownership appears in a wide array of industries. Corporate governance of family firms versus non-family firms Perhaps not surprisingly, family firms tend to have fewer independent directors on the board because they are inclined to put family members on the board. Similarly, due to family shareholdings, family firms have lower institutional ownership. If we use traditional standards of corporate governance, family firms may appear to have “worse” corporate governance as compared to non-family firms. However, family firms are found to have a better performance in particular when founders are involved. Thus, we can consider family ownership as a unique form of corporate governance which contradicts the typical academic definition of good governance. Enhancing Corporate Governance for Family- controlled Listed Firms By Professor CHEN Tai-Yuan Department of Accounting HKUST Business School Family ownership is a unique form of corporate governance Family businesses should strive to be more transparent, and recruit more external parties to governing positions. Insight Biz@HKUST 40