Foundation Ownership and Firm Performance

19 Jul 2022
A recent talk in the Sasin Research Seminar series was a fascinating look at foundation ownership and firm performance by Professor Steen Thomsen (from the Center for Corporate Governance, Copenhagen Business School and ECGI) based on a paper co-written with David Schroeder. Professor Thomsen began by explaining that enterprise foundations are non-profit entities that own companies. Then, he discussed what the parameters were for the study, such as the foundation being the largest owner with at least 10% of voting rights. Foundations are a mix of non-profit and profit and are governed by a foundation board according to a charter and purpose decided by the founder. Typical goals are company survival, philanthropy, and founding family support. Twenty examples of foundations from around the world were discussed. These included large companies like Bosch and Bertelsmann (Germany), Maersk and Novo Nordisk (Denmark), Hershey (US), the Wallenberg companies (Sweden) and the Tata Group (India). While foundations are found worldwide, they are primarily a European concept. Of the 237 firms in the data, a third of foundation-owned companies are Nordic, and three-quarters are in Europe. The study only used listed companies as they are more transparent. Next, competing theories and previous studies were discussed. The Agency Theory View is that Foundation-owned companies will underperform as there is no profit incentive, they can’t fully diversify, and they are exposed to risk. They are also not disciplined by the market for corporate control. Conversely, the Purpose View says that foundation-owned companies benefit from several aspects. For example, the absence of profit incentives can be advantageous. They also have greater social trust, long-term ownership commitment, purposeful ownership, motivated employees, and virtual ownership. There are two types of enterprise foundations. The first are charitable foundations with a philanthropic purpose, such as Carlsberg. The other is family foundations that support the founding family. Either type may or may not have a formal company purpose, and in practice, the business purpose typically dominates. The study’s data comes from publicly listed firms in which enterprise foundations are controlling owners (>20%). Two control groups were used – family-owned and investor-owned companies in the same industry and size class, over an observation period from 2000 to 2020. The final sample included an unbalanced panel of 318 publicly listed firms and over 3000 firm-year observations. Next was a slide comparing the profitability of Foundation owned Firms (FoFs) with non-FoFs. The study found that FoFs were more profitable. This was followed by a deeper look at the data, including a Univariate analysis looking at variables that included ROA, Firm Value, Stock Return, and Growth. Professor Thomsen then looked at regression results, comparing FoFs to a control group using the same variables as the univariate analysis. This was followed by an explanation of the robustness checks used and the problems encountered. Acquisitions performance was assessed with a look at how stock markets react to acquisitions. First, the methodology and data used were explained, followed by the regression results, which showed foundation-owned firms tend not to underperform, but charitable foundations did. Next was a look at sustainability and ESG ratings. The findings and ESG regressions found that FoFs tended to overperform. Other sustainability measures were examined, including employee satisfaction, CO2 Emissions intensity, waste recycling ratio, and LTIR. The results found that charity foundations were better for the environment. This was followed by a brief look at foundation ESG ratings before and during the financial crisis. The professor then asked, “So what?” He looked at the favorable aspects of foundations and suggested reasons why countries like Thailand would benefit. He also discussed long-term ownership companies and similarities with purposeful companies. The talk then moved on to the emerging picture and how long-term ownership affects sustainability and CSR. He noted that family-owned companies underperform on sustainability compared. Professor Thomsen finished with the idea that Steward Ownership is needed and introduced its origins and how it can be implemented.  
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