“One of the most important factors in corporate governance is the ownership structure of the company.” This is a quote that has shown up in many of The Corporate Library’s reports and commentaries over the years. We have explored the issue of ownership in various ways, including an in-depth analysis of the differences in governance practices between companies with concentrated ownership and those with dispersed ownership in our Governance Practices report. Ownership structure is one of the key issues in corporate governance, and it seems, in corporate culture as well.
This notion was reinforced for me when I analyzed the governance practices in place at Fortune Magazine’s most recent list of the “100 Best Companies to Work For” published in their February 8th issue .
I was struck by how few of the companies on the Fortune list are publicly-traded. Most of the companies are either privately-held or non-profit organizations. In fact, only 38 of the 100 companies on the Fortune list can be found in the Board Analyst database, which includes more than 3,200 publicly-traded North American companies. Does this mean that companies that do not have public shareholders are a better place to work? If company leaders do not have the pressure to make quarterly earnings projections, can they focus more on their employees? I also wanted to know whether boards and CEOs who make good decisions for their employees also make good decisions for their shareholders. However, the answers to these questions are unclear.
After analyzing the governance practices – such as board composition, CEO compensation and takeover defenses - at these 38 companies, I was surprised to see that their governance practices do not differ much from those in place at all of the companies in our database. In general, their boards are structured very similarly; we have the same level of concern about their CEO compensation and takeover defenses. The key difference seems to be ownership structure.
Nearly one-third of the 38 publicly-traded companies on Fortune’s list have a high level of ownership and voting power by the firms’ founder and/or his or her relatives. This compares to only about 20% of the more than 3,200 companies in the Board Analyst database which have this ownership structure. For example, at Google, Inc. -- which was the highest-ranking publicly-traded company on Fortune’s list, at number 4 -- co-founders Sergey Brin and Larry Page (both of whom are directors and company executives) control just over 58% of the total voting power. Another example is Nordstrom, Inc. – which came in at number 53 on Fortune’s list – where members of the Nordstrom family, who own approximately 26% of the company’s stock, hold key management positions within the company and occupy three of nine seats on the board. There are several other companies on the Fortune list with similar ownership structures. If you are interested in finding out more, please request a free trial to our Board Analyst database.
Of course, this is not a statistical analysis, but it is notable that many of the publicly-traded companies which excel in the employee satisfaction measures used by Fortune to determine the 100 Best Companies to Work For have influence from the company founder or family via a large ownership stake, executive and board positions. While we cannot be sure from this brief look that the influence of these owners is what leads to these employee-friendly practices, or whether these practices lead to positive shareholder returns, it does reinforce our view that ownership structure is key issue to consider when evaluating the corporate governance firm performance and that more study is warranted in this area.
Annalisa Barrett - Senior Research Associate
