Mandatory employee board representation: Good news for family firms?

François Belot and Timothée Waxin

International Review of Law and Economics, 2022, vol. 71, issue C

Abstract: We assess the corporate performance and corporate governance consequences of mandatory employee board representation through a natural experiment: the passage of the 2015 Rebsamen law in France, which requires 1 or 2 board seats to be allocated to employee representatives. We hypothesize that such formal institutional arrangements to give workers a voice in corporate governance are irrelevant for family firms, which have been shown to commit to implicit contracts with their employees. We find evidence that affected family firms’ share prices reacted negatively to the passage of the law. Moreover, standard OLS regressions of operating performance suggest that family control neutralizes the positive effect associated with employee directors. A more sophisticated difference-in-differences approach shows that affected family firms experienced a significant subsequent decrease in their return on assets. Our investigations of board composition also suggest that family firms rely on avoidance strategies to offset the influence of employee representatives. Overall, this paper casts doubt on the efficiency of minority worker representation in the boardrooms of family-owned companies and thus cautions against a “one-size-fits-all” approach to corporate governance practices.

Keywords: Employee directors; Family firms; Corporate performance; Corporate governance (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:71:y:2022:i:c:s0144818822000400

DOI: 10.1016/j.irle.2022.106084

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