EMPLEO DE PERSONAL

Apart from looking at the corporate governance effect of family ownership, the board structure of family firms – one of the important internal corporate governance mechanism of family firms, has also been widely studied and discussed (Bammens et al. 2011). The monitoring role of boards has been the focus of extensive corporate governance research (Adams et al. 2010; Johnson et al. 1996; Dalton et al. 2007). With fiduciary obligations to the vast shareholders and the essential role to determine the strategic direction of the company and monitoring, the role of board of directors in the governance of the corporation is imperative (Gillan 2006; Licht 2013). Different from non-family firms, existing family firms studies empirically demonstrate that in comparison to the corporate governance function of the board, takeover market, institutional investors and even incentive compensations provide less governance

function in family firms (Gomez-Mejia et al. 2003; Kole 1997; Shivdasani 1993). Consequently, this further highlighted the importance of strengthening the corporate governance function of the board in family-controlled firms.

Corporate governance literature has continuously indicated that the composition and structure of the board of director is an important element in affecting the strategic direction and performance of the company, which ultimately affect the wealth of the shareholders (Arena and Braga-Alves 2013; Black et al. 2012; Li and Srinivasan 2011; Rosenstein and Wyatt 1997). Studies have demonstrated that preferences and practices of family firms, in terms of board composition and board structure, are significantly different from those of non-family firms (García-Ramos and García-Olalla 2011). These are especially the case when the presence of founders and heirs are considered. Family-controlled firms in developed countries have been found to be more likely to deviate from the best standard practices of corporate governance (Arcot and Bruno 2012; Anderson and Reeb 2004; Aguilera and Crespi-Cladera 2012; Schulze et al. 2001). Similar to family firms of other nations, the board structures of Malaysian family firms are also quite different from those of other Malaysian non-family firms, a few of which have been duly documented.

In Malaysia, the study carried out by Amran and Ahmad (2009) is one of the few which documented the differences between the board structure of publicly listed Malaysian family-controlled firms and the board structure of non-family-controlled firms. They investigated this governance mechanism of Malaysian publicly listed companies in terms of board independence, leadership structure and board size. Their findings revealed that Malaysian family-controlled firms favour the good practise of dual leadership structure where CEO and chairman of the board are vested in two separate individuals. Additionally, the board independence of Malaysian family-controlled firms is also found to be in lower degree.

Ibrahim and Samad (2011a) supported the findings of Amran and Ahmad (2009) that independent directors and duality are treated differently by Malaysian family- controlled firms. Their overall evidence revealed that Malaysian family-controlled firms do not need independent directors to monitor the board in order to reduce agency conflict with shareholders. These findings further show that Malaysian family- controlled firms are similar to family-controlled firms examined by Anderson and Reeb (2004) as well as Chen and Nowland (2010) in US and East Asia respectively; the controlling families often seek to minimise the presence of independent directors and are reluctant in the adoption of monitoring practices.

However, such preferences do not affect the interests of the shareholders. Chen and Nownlad (2010) have provided evidence that moderate levels of board monitoring for East Asian family-controlled firms32 are sufficient to satisfy the minority shareholders. In actual fact, their studies revealed that at a higher level of monitoring, the marginal benefit of reducing the agency problem between controlling family and minority shareholders has been found to be outweighed by the cost of wealth destruction for all shareholders of the family-controlled firms.

Such low preferences of Malaysian family-controlled firms for outsider monitoring is also supported by study of Ibrahim and Samad (2011b), which is reflected through the lower usage of debt (in comparison with Malaysian non-family firms). A report by

Credit Suisse also supports the lower preference of Malaysian family firms over debt

usage with the net financial gearing of the family firms remain below the broader market (Fan, Tan, et al. 2011). As mentioned by Jensen (1986) and Grossman and Hart (1982), high debt may be used as a disciplinary device on managers, which results in

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positive effect on the value of the firm. 33 The findings of Ibrahim and Samad (2011b) are similar to debt preference of family-controlled firms in other countries, as reported by González et al. (2012). The findings of González et al. (2012) revealed that Columbian family-controlled firms that are managed by the family tend to have lower debt levels. They have suggested that such finding demonstrates the risk-averse nature of family directors.

Apart from the low preferences for outsider monitoring by Malaysian family-controlled firms, study by Amran and Ahmad (2009) found no significant difference between family and non-family-controlled companies in terms of board size. These are also supported by later studies (Ibrahim and Samad 2011b, 2011a). Results of studies carried out by Ibrahim and Samad (2011b) showed that the board sizes for family and non-family Malaysian publicly listed firms are on an average of 8 persons.

In terms of family members on board, studies have documented the dominance of related family members of the controlling family on corporate boards of Malaysian family-controlled firms, with an average of 40% of the total number of board members (Ameer and Abdul Rahman 2009). In comparison with those found in US studies, Anderson and Reeb (2004) documented only an average of 20% family directors on board, which is considerably lower than those documented for Malaysian family firms.

Overall, previous studies have revealed that the corporate governance practices, in relation to the board structure of family-controlled firms, are different from other types of organisations, including Malaysian family-controlled firms. Few rationales have been proposed to justify such corporate governance preferences and practices of family firms (Arcot and Bruno 2012). First, family owners are in a better position to play

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The findings of San Martin-Reyna et al. (2012), on the other hand, revealed that debt level negatively affects the performance of family-controlled firms.

the monitoring and advisory roles of the board as compared with the application of standard corporate governance practices. They stated that lower governance standards in family firms are not necessarily associated with lower firm performance. This argument again supports the contention of Chen and Nowland (2010). The empowerment of the board of directors with monitoring roles is not very relevant in family firms, since the controlling family will naturally protect their firms from any malpractices.

The second reason may be due to entrenchment from the family shareholders, for having the incentives to expropriate minority shareholders or entrench themselves in managerial positions (Shleifer and Vishny 1997). Unlike non-family-firms, family- controlled firms endogenously opt for optimal governance structure which does not conform to standard governance practices that are recommended by the respective law and regulations (Arcot and Bruno 2012). As a result, the entrenched family shareholders may opt for corporate governance practices that facilitate extraction of private benefits. In terms of possible expropriation of minority shareholders (expropriation hypothesis), studies have documented its existence among Malaysian family-controlled firms (Liew et al. 2011). In a study by Liew et al. (2011), related party transactions have been found to be one of the tools employed by Malaysian family- controlled firms for expropriation of minority shareholders. They have documented that such activities reduce the value of Malaysian family-controlled firms.

The nature of the ownership structure of Malaysian family-controlled firms, in which ownership is gained through pyramidal and cross-holdings structure with concentrated shareholdings, further renders governance on family firms difficult (Azizan and Ameer 2012). The boards of Malaysian family-controlled firms are also dominated by members of the controlling families who are also the major shareholders of the companies (Ameer and Abdul Rahman 2009). Studies by Azizan and Ameer (2012) have also

revealed entrenchment of the controlling families in Malaysian family-controlled firms when the equity stakes of the controlling families in the companies are more than 40%.