Board composition in family and non-family innovative businesses

Abstract

This paper aims to contribute to the literature on corporate governance and innovation, providing empirical evidence with respect to the evolution of board composition and innovation over time, comparing between family and non-family businesses. Data were collected from 86 Spanish companies belonging to innovative sectors during the period 2003 to 2014. The results show a significant difference between family and non-family firms in terms of their board composition, indicating bigger boards and a higher proportion of independent directors in the case of non-family businesses. With regards to external directors, the results also show that their proportion has been increasing in the last years especially in family companies, reaching similar levels to non-family ones. Finally, in terms of gender, its diversity has been also increasing in both types of companies, but more in family businesses, equalling or even overcoming gender diversity in non-family businesses. Non-significant differences were detected in the composition of the boards over time, with the only exception of gender diversity, which shows a significant growth. This descriptive study contributes to the inconclusive research on how is the composition and structure of the board in innovative companies, highlighting the differences between family and non-family business.

Board effects on innovation in family and non-family business

“…This study contributes to the body of research testing empirically the board effects in advancing the strategic direction of the firm. Based on one of our previous descriptive studies ( Gonzales-Bustos et al., 2017 ) in board composition and firm innovation, we have applied an explanatory approach to obtain new findings and insights through empirical evidence on the impact of board characteristics on innovation. First, it is confirmed that incorporating more members and especially women into the board can improve innovation.…”

“…These studies shed light on the board's strategic and advisory role ( Gonzales-Bustos et al., 2017 ). According to the Agency Theory, small boards may not have sufficient experience and skills for the effective control and evaluation of the initiatives, particularly those related to innovation ( Gonzales-Bustos et al., 2017 ). This would make the board emphasize short-term goals and objectives, leaving aside long-term objectives such as those related to innovation ( Zahra et al., 2000 ).…”

“…Gender diversity on companies' board of directors is a subject of debate in corporate governance studies ( Terjesen et al., 2009 ). There are arguments emphasizing the importance of female board members, even if in most cases, their presence is still purely symbolic ( Daily and Dalton, 2003 ; Terjesen et al., 2009 ; Gonzales-Bustos et al., 2017 ; Hernández-Lara and Gonzales-Bustos, 2020 ).…”

“…In family businesses, different types of board members may also have distinctive impact on innovation and R&D investments ( Corbetta and Salvato, 2004b ), but such impact is not necessarily the same as it may have on non-family businesses. In the case of family businesses, some scholars consider that external and/or independent board directors may have a greater impact on innovation due to the moderating divergence of interests ( Miller et al., 2005 ; Gonzales-Bustos et al., 2017 ) and the reduction in agency costs with regard to family altruism ( Schulze et al., 2002 ).…”

“…Innovation becomes a crucial tool not only for firms to develop and maintain the competitive advantages in the ongoing turbulent market ( Becheikh et al., 2006 ; Gonzales-Bustos et al., 2017 ) but also a key for their success and survival ( Kor, 2006 ; Torchia et al., 2011 ). There are both internal and external variables which may have an impact on firms' innovation process and strategy ( Cassiman and Veugelers, 2006 ).…”