Although it has been estimated that the majority of family firms (FFs) in developed and developing economies are small- and medium-sized businesses (Venter & Hayidakis, 2021), a substantial number of publicly listed firms around the world are under the direct control of families (Benjamin et al., 2016). Empirical studies indicate that the concentration of ownership within a family is common among listed firms and predominant among FFs. The FFs also have a strong presence in South Africa where it is estimated that 60% of publicly listed firms on the Johannesburg Stock Exchange (JSE) are FFs (Rabenowitz et al., 2018). Given their substantial contribution to economies worldwide, scholars have shown a growing interest in FF-related research in the last two decades (Molly & Michiels, 2021; Sherlock et al., 2022; Rovelli et al., 2021). While a plethora of definitions exist to define an FF, most include some measure of family ownership (the percentage of shares held) or family involvement in management and decision-making structures and processes, including the board (Acquaah & Eshun, 2016; Andersson et al., 2018; Arteaga & Escribá-Esteve, 2021).

Compared to non-family firms (NFFs), FFs have two distinct characteristics. Firstly, FFs have the intention to pass the business down to successive generations. Secondly, there is a constant interaction between the family, business and ownership systems (Metsola et al., 2020). Daspit et al. (2021) thus are of the opinion that FFs have unique succession intentions, non-financial goals, governance structures and outcomes compared to NFFs. In recent years, the number of studies investigating FF heterogeneity has also grown substantially, showing that FFs differ from one another in, among others, their non-economic goals, socioemotional wealth (SEW), values, governance configurations and family-generational-interpersonal exchange (Daspit et al. 2021).

In the global context, many scholars have compared listed FFs with non-FFs in terms of board diversity and independence (e.g., Garcia-Meca & Santana-Martin, 2023; Khadija, 2022; Robino et al., 2017). However, in South Africa it is almost impossible to do a comparative study, as no complete list of JSE-listed FFs (Mashele, 2021) and previous research on board composition of these firms exists. As such, it is practically impossible to compare listed FFs with NFFs to identify the impact of the family on financial performance or to assess differences in respect of corporate governance outcomes such as an ethical culture, effective control and legitimacy (Institute of Directors South Africa [IoDSA], 2016). Researchers and regulators, nonetheless, underscore the importance of studies on board independence and diversity as these provide potential means of improving corporate governance (Khadija, 2022). Shareholder activists are however, increasingly criticising JSE-listed firms for failing to improve on these board characteristics (Cassim, 2022; Davids & Kitcat, 2023; Viviers et al., 2019).

Several well-known JSE-listed FFs have been targeted by shareholder activists in recent years. Many of these firms created pyramid structures in the 1950s and 1960s to preserve the founding family’s control and thwart hostile takeover bids (Hasenfuss, 2008). Activists have argued that these control structures are costly and show no respect for modern corporate governance standards (Hasenfuss, 2008). While most of these control structures were dismantled in the mid-2000s, some are still firmly in place.

Investors who are concerned about board ineffectiveness can use a range of activist strategies to bring about change. Gornsztein and Likhtman (2020) emphasise that:

As the most influential investors, shareholders can initiate change by voting against the election of certain directors, asking questions at shareholder meetings, and requesting private negotiations with key decision makers (Martini, 2021). As in many other common law countries, shareholder activism in South Africa primarily takes place behind closed doors (Cassim, 2022; Mans-Kemp & Van Zyl, 2021; Shingade et al., 2022; Yamahaki & Frynas, 2016). More instances of public activism are, however, found in these countries especially among activists striving to improve corporate governance policies and practices.

All JSE-listed firms, irrespective of their ownership and control structures, should comply with the governance guidelines contained in the King reports. King I was the first report published in South Africa in 1994 and contained non-legislative codes that were to be applied through a principle-based approach (Ntim, 2013). This report was updated in 2002 to accommodate rapid changes in information, communication and technology. Despite the voluntary nature of King I and II, both reports resulted in changes to the JSE’s listings requirements. Since the first report, JSE-listed firms have been urged to appoint independent non-executive directors (INEDs) to monitor and address opportunistic managerial behaviour (IoDSA, 1994). Independent non-executive directors are also called outside or unaffiliated directors. Firms have also been encouraged to split the roles of board chair and chief executive officer (CEO) to improve managerial oversight and avoid potential conflicts of interest (Davids & Kitcat, 2023; IoDSA, 2016, 2009).

In FFs, however, board chairs and CEOs are often family members (Kerai et al., 2023). In addition to assuring that the business under their management stays competitive, these individuals also experience pressure to preserve the family chain, power, culture and heritage (Corbetta & Salvato, 2004; Curado & Mota, 2021; Farrington et al., 2020). Some family board chairs and CEOs have been very successful in achieving these divergent goals (Farrington et al., 2020). The presence of family members on the board and in executive positions have furthermore been shown to enhance financial performance and improve loyalty and goodwill among customers, employees, suppliers and local communities (Aronoff & Ward, 2016; Berrone et al., 2012; Kang & Kim, 2016; Sageder et al., 2018).

Given the benefits of family involvement in the highest decision-making echelons of FFs, is it justified to hold them to the same corporate governance standards as their non-family counterparts? Consider the example of Simon Susman who dedicated 37 years of his life to Woolworths Holdings. In 1934, Simon’s grandfather, Elie Susman and brother Harry, bought their first shares in the South African clothing retailer, ushering in an eight-decade-long association with the firm. During Simon’s decade at the helm (2000–2010), the firm’s share price rose from R2.60 to over R26.00 (Buthelezi, 2018). After Susman’s retirement as CEO, shareholders elected him as non-executive board chair. After stepping down from this position in 2019, he continued to provide support and advice to the board free of charge and continued to devote his time to advancing Woolworths’ participation in civil and corporate society (Crotty, 2019). Local shareholder activist Theo Botha criticised Susman’s appointment in 2010 on the grounds that the chairperson should be an INED (Marais, 2010). Susman’s affiliation with the founding family and long tenure as CEO of the business clearly disqualified him as being an INED (IoDSA, 2009).

Given the importance of listed FFs in the South African economy, scant research on how, if at all, JSE-listed FFs differ from their non-family counterparts concerning board composition, governance, heterogeneity among FFs, calls by shareholder activists for enhanced board independence and transparency exist. This descriptive study, thus makes several theoretical and practical contributions. Firstly, this study contributes to the limited literature on listed FFs in South Africa and aims to present a more balanced view on the complex topic of FF governance as suggested by Arteaga and Escribá-Esteve (2021). Secondly, this is the first study of its nature in South Africa, making use of not only of traditional theories such as the agency theory but also the socioemotional wealth (SEW) and stewardship theories to investigate the influence of the family on board practices. Thirdly, the empirical evidence will enable future researchers to determine the influence of these board practices on firm’s performance and other outcomes of listed firms, and compare listed FFs in South Africa with their non-family counterparts. The latter is necessary to add to the global debate whether FFs and the family themselves, have a positive or negative influence on board practices and the financial and social performance of the business. Several practical recommendations are made on how South African JSE-listed FFs could improve their board composition and independence.

Secondary data were hand collected from the integrated reports and corporate websites of 37 JSE-listed FFs over the period of 2002–2022. This time frame was chosen as it covers governance guidelines contained in three King reports (II, III and IV). Focus was placed on director independence, chair independence, chair-CEO role duality, board race and gender diversity, and board rotation. Annexure A provides extracts from the relevant King reports on these governance guidelines. The following section is dedicated to defining FFs, highlighting their importance and presenting arguments for and against stricter board governance at these firms. Arguments are rooted in the agency, SEW, and stewardship theories. The methods used to collect and analyse data are then outlined. Key findings are presented thereafter along with suggestions for nomination committees and non-family directors serving on the boards of JSE-listed FFs, governance activists, policymakers and scholars.

No sample frame reflecting the population of JSE-listed FFs exists (Mashele, 2021). The authors were, however, able to extend an existing database in which an FF was defined as a JSE-listed firm with at least one family member on the board (Viviers, 2022). Keywords such as ‘family firm’, ‘family business empire’, ‘business tycoon’, ‘family-owned’, ‘family-controlled’, ‘heir(s)’, ‘successor(s)’, ‘founding family’, and ‘Bros’ were used to identify additional FFs from articles published in credible online financial newspapers, magazines and industry reports. The sample was thus constructed based on data availability. Family firms that were suspended or that delisted during the research period (2006–2022) were included in the dataset to address potential survivorship bias. Data on industry association and year of establishment were collected from the FFs’ integrated reports and websites and other credible sources.

The following data were hand collected for each of the 753 directors who served on each of the 37 identified FFs’ boards for each year that the firm was listed: name, status (executive; non-executive; INED); date appointed to the board, gender (man; woman), race (person of mixed race; white), whether the director was the CEO (1;0), whether the director was the board chair (1;0), and whether the director was a member of the founding family (1;0).

The surnames of women directors who got married or divorced during the research period were carefully checked to avoid double counting. A director’s gender was determined by examining photos and references to ‘Mr’, ‘Ms’, ‘Mrs’, ‘he/him’ or ‘she/her’ in the FFs’ integrated reports. In instances where no identifying data were disclosed, websites and other online resources, such as LinkedIn and Who’s Who of Southern Africa were consulted. The authors acknowledge the shortcomings of this approach in that directors could have gender identities and roles other than those described as ‘man’ or ‘woman’. A director’s race was determined by referring to Section 9(5) of the Broad-Based Black Economic Empowerment Act (No. 53 of 2003).

Each director’s tenure was determined by comparing the year under consideration with the year in which he and/or she was appointed to the board. Table 1 provides a description of other variables computed. Two proxies were considered for director independence, namely percentage of INEDs as reported and percentage of INEDs re-categorised.

The nature of family involvement was also determined. A board was classified as intergenerational where family members from different generations served concurrently. An intragenerational board had family members from the same generation, such as siblings or cousins, serving side by side. Data were furthermore sourced from the Bloomberg database on board rotation, that is the maximum number of years that a director may serve before he and/or she is required to stand for re-election. The unbalanced panel dataset was analysed using descriptive statistics, mixed model analysis of variance (ANOVA) tests.

In the majority of FFs, a successor was the only family member on the board. Several examples of intergenerational and intragenerational boards were observed. In most intergenerational boards, fathers and son(s) served concurrently. Most family members were second generation and often served alongside a parent, sibling or child. As illustrated in Table 3, the average percentage of family board members remained relatively constant at 16%. Table 3 also reflects the outcome of the mixed model ANOVA, which was used to determine whether there was a statistically significant change in this variable over the research period.

Considerably fewer family members were board chairs and CEOs towards the end of the study period. In 2022, less than a third (29.17%) of the sampled FFs’ chairs were family members and a mere 16.67% had a family member as CEO. Kang and Kim (2016) found a similar trend among family-controlled Chaebols in Korea from 2001 to 2011. These scholars noted that Chaebols were more likely to replace family CEOs with non-family CEOs when they experienced deteriorating financial performance. With fewer family members in the ‘driving seat’, impartiality in board decision-making might have improved.

The findings in Table 3 contradict some studies (e.g., Berrone et al., 2012; Morgan & Gomez-Mejia, 2014; Shaw et al., 2021), which suggest that FFs prefer to maintain control of these two key positions to ensure the renewal of family bonds to the firm through dynastic succession. Details on important board characteristics over time are presented in Table 4. Except for one, all FFs separated the roles of board chair and CEO. From a corporate governance perspective, this result is welcome as policies such as King IV suggest the separation of the two roles (IoDSA, 2016). The splitting of these two roles allows for increased skills, experience and critical evaluation of boardroom decisions (Mandato & Devine, 2020). Approximately one fifth of the sampled FFs required directors to stand for re-election on an annual basis. This board rotation requirement is important from the agency perspective as it encourages regular board refreshment and enhanced impartiality (Dah et al., 2023). Board refreshment can improve board capabilities as new directors with fresh perspectives and expertise are appointed while maintaining important skills and institutional knowledge (IoDSA, 2016). From the principal-principal conflict point of view, board refreshment may also enhance the confidence of minority shareholders in the board as they can see that their interests are also being considered. Details on important board characteristics over time are presented in Table 4.

In line with previous South African FF scholars (Viviers, 2022), a significant increase is observed in the proportion of INEDs in terms of the FFs’ own director categorisations (F [16 444] = 4.10, p ≤ 0.0). Although the percentage of INEDs based on kinship and board tenure (the re-categorised % of INEDs) also increased over time, the change was not statistically significant. From an agency point of view, these developments are a step in the right direction. The same applies to the replacement of family members at the helm of the board with INEDs whose impartiality is beyond reproach. In the broader South African context, Muchemwa et al. (2016) also reported a significant increase in board independence among JSE-listed firms over time. The implications of enhanced board independence, for FFs and NFFs alike, include stability, objectivity and protection from entrenchment and certain business risks (Gornsztein & Likhtman, 2020; IoDSA, 2016).

The level of board independence reported by the FFs was consistently and significantly higher than the authors’ re-categorisation based on family association and tenure (45.25% vs. 32.39% on average; F[16 924] = 2.78, p ≤ 0.01). The large and growing gap might be because of the shift from using a factual independence approach to categorise INEDs (King III) to a perceptual independence approach (King IV). Shareholder activists who use a strict (factual) definition of independence, might indeed be concerned that the average FF did not meet the King requirement of having a majority of INEDs on the board. They should, however, note that independence is not only influenced by tenure but also by factors such as board dynamics and relationships. The SEW theory in particular highlights the presence of ‘binding social ties’ in FFs. This term is used to describe the relationships experienced not only among family members but also with other stakeholders, that foster a sense of loyalty and belonging within these firms (Berrone et al., 2012). Attention should also be given to the skills and social capital that long-tenured INEDs bring to the table. Social capital refers to the gain of goodwill and resources through trusting relationships (Arregle et al., 2007). Anecdotal evidence suggests that long tenured INEDs actually have more confidence to challenge executives than their less experienced (i.e., shorter-tenured) counterparts. Long-tenured INEDs serving on FF boards might also aid in resolving conflicts of interest, planning for continuity and enhance accountability.

To avoid shareholder ire, FFs should ensure that sufficient information is disclosed on the processes used to appoint family members to the board. The following example illustrates the point: In 2005, the food retailer Shoprite Holdings was accused of nepotism when second generation family members Adrian Basson and Jacob Wiese were nominated and elected as alternate directors. Whereas some shareholders expressed discontent on independence grounds, others simply wanted to see the nominees’ CVs (curricula vitae) to gauge their suitability (Brand, 2005, p. 1). Although shareholder concern is warranted on the basis of director independence and suitable experience, these family directors may be regarded as stewards that had a vested interest in the financial success and continuity of the firm. The appointment of Adrian Basson and Jacob Wiese may thus be argued to have been for the betterment of all shareholder interests.

Assore, a mining holding company, is a good illustration of a JSE-listed FF that proactively addressed shareholders’ concerns regarding the independence of their board chair, Desmond Sacco, in 2017. Desmond joined his father Guido in the FF and was appointed to the board in 1974 (as executive). He became board chair in 1992 and held this position until 2017 when the firm delisted from the JSE. The following statement appeared in the firm’s integrated report:

From an agency perspective, there are several reasons to have a lead independent director which include the enhancement of managerial monitoring and increased consideration of minority shareholder interests (Bonazzi & Islam, 2017; Muniandy & Hullier, 2015).

The PSG Group also assured shareholders that the independence of long-tenured INEDs and factors that could potentially impair their objectivity were evaluated on an ongoing basis. In their 2022 integrated report, this investment holding company stated:

This statement, once again, alludes to the value FFs place on social capital.

In the Grindrod’s case, the nomination and governance committee evaluated the independence of all INEDs on a substance-over-form basis, in accordance with King IV. In 2022, Walter Grindrod was not deemed to be independent given that he was an associate of Grindrod Investments (Pty) Ltd which had an 11.02% shareholding in the FF (Grindrod, 2022). Less convincing arguments were presented by other FFs that categorised family members as INEDs. AVI, for example, only stated that:

At the time, James Hersov, a third-generation family member, had a board tenure of 28 years.

In 2022, The Foschini Group reported that six of their nine INEDs had served a term in excess of 9 years:

At the end of the 2022 financial year, Lewis had been a board member of his family’s retail empire for 34 years. Probing questions from shareholder activists regarding the categorisations of Hersov and Lewis as INEDs are warranted given the FFs’ vague justifications. The insistence of board independence by shareholder activists is rooted in the agency theory, as minority shareholders wish to protect their interests through sufficient managerial oversight (Kilincarslan, 2021).

As illustrated in Table 4, both gender and race diversity increased significantly over the research period (% of women: F[16 444] = 6.50, p ≤ 0.01 and % of persons of colour [PoC] F[16 444] = 5.16, p ≤ 0.01). Prior research shows that board oversight generally improves with the appointment of more diverse individuals (Arayakarnkul et al., 2022; Ghafoor et al., 2019; Guest, 2019). Shareholders evaluating FF governance from agency and SEW perspectives will thus be pleased with this development. Of the 70 directors representing founding families in the sample, only 5 were women.

Some FFs recognised the importance of transparent reporting to avoid public criticism. In 2012, Famous Brands, for example, reported that their board does not meet the independence criteria of King III as it mainly comprised of founding shareholders and long-serving directors. They stated:

A prominent business journalist in South Africa also demonstrated the importance of the founding family’s commitment and experience to ensure the success of the FF. In his tribute to Neil and Cecil Jowell upon their retirement from Trencor’s board in 2015, he wrote:

In line with the stewardship theory, reference is also made to the skilful manner in which Murray Grindrod chaired the freight solutions firm bearing his name for two decades. Over this period, his freight business grew from a relatively small undertaking to a successful multinational firm. According to the stewardship theory, independent directors are not a necessity as managers are believed to act altruistically for the collective good of the business (Jasir et al., 2023). This theory may be aligned to the SEW theory, as family directors or managers may act as stewards given their commitment to pass their firms down to future generations.

This research was the first of its kind to investigate the board composition of JSE-listed FFs with the aim of determining alignment with governance codes and international best practices. The findings show that fewer FFs had family chairs and CEOs at the end of the research period (2022) than at the beginning (2006). They also appointed more INEDs, women and persons of mixed race to the board over the considered period. In line with King IV recommendations of increased board independence and diversity, this result is welcome as it may lead to improved managerial oversight (IoDSA, 2016). Many of the directors who were categorised as INEDs were, however, family members and had tenures of more than 9 years. Some FFs justified these appointments by explaining how these directors’ impartiality was assessed. Reporting at other FFs left much to be desired. The lack of transparency in reporting may signal that the primary interest in FFs is preserving their SEW instead of considering the interests of all shareholders (both family and minority). Probing questions from shareholder activists on this topic is thus warranted.

To avoid raising shareholders’ ire, nomination committees of JSE-listed FFs should improve disclosure on the topic of board independence. Where INEDs are family members, more focus should be placed on the value of family involvement and commitment as captured in the stewardship theory. The authors concur with Gornsztein and Likhtman’s (2020, p. 2) suggestion that nomination committees should place more emphasis on ‘genuine independence, diversity and inclusion’. While difficult to measure, nomination committees should attempt to assess the psychological capabilities, emotional intelligence and experience of INEDs to effectively question long-held assumptions, reduce the risk of groupthink and stimulate innovation. Attention should be given to the number of board positions held concurrently, interactions during and outside of board meetings, and each INEDs relationship with the CEO, the workforce, and investors. Where possible, the quality of independent thought should also be examined (Gornsztein & Likhtman’s 2020). A board culture should be created, which gives family and non-family directors the confidence to challenge management and create discomfort, if necessary.

Family firms need to deliver on promises of board refreshment and succession planning. When appointing chairs, care should be taken to ensure that these individuals are able to provide the traditional functions of financial and governance oversight while ensuring that their firms meet society’s expectations regarding purpose, diversity, equity and inclusion. Clear and comprehensive communication is critical in cases where the family is perceived to preserve their SEW at all costs. Family firms are likely to experience more public criticism if they continue to disregard independence and disclosure best practices.

Activists should, however, notice that public disclosures offer a limited perspective on the quality of FF governance. They would also do well to heed Lane et al.’s (2006) warning:

Dedicated and continuous engagements between boards and investors who care about board composition and governance will offer valuable insights on efforts to reduce agency costs. Non-family directors are urged to develop their own sources of information to supplement board packs. In doing so, the information imbalance between themselves and family directors and managers could be properly addressed. Additional insights would also assist in identifying activities by the family to preserve their SEW, such as appointing family managers rather than more experienced non-family managers or overlooking poor decision-making of family managers and/or directors because of the emotional attachment of family members (Berrone et al., 2012). Policy makers such as the King Committee, JSE and IoDSA are encouraged to offer more director and investor training on the topic of FF governance. The unique contributions of family stewards might call for a more nuanced approach to governance requirements. Newly elected INEDs should recognise that there are important differences in governance between FFs and non-FFs. While critical enquiry is equally important in both types of firms, INEDs are likely to experience more ideological tensions in paternalistically run FFs than their counterparts in other types of firms.

The main limitation of this study relates to the exclusion of alternate directors, some of which were family members. Future studies could perhaps include these directors and investigate skills gaps present on FF boards. Specific attention should be given to cybersecurity and climate change. Family Firm boards that are able to combine deep relevant experience and knowledge with independence will be better positioned to create lasting value for all their shareholders and stakeholders. Attention could also be given to the number of boards on which the FFs’ INEDs serve concurrently. While multi-boarded directors bring a great deal of experience to the table, they might also be too busy to fulfil their monitoring roles effectively. Focus should be placed on the number of board positions held concurrently, interactions during and outside of board meetings, and relationships with the FF’s CEO, workforce and investors. In light of increased incidences of CV fraud in South Africa, more stringent verification processes are also recommended.

While every effort was taken to identify family members based on surnames, future studies could further refine the database to determine the true extent of family involvement, particularly at FFs that have been in existence for a few generations. Qualitative researchers could investigate interactions between directors during and outside of board meetings, and how culture influences boardroom dynamics at FFs. Future researchers could also develop a governance index for FFs and NNFs, and use these indices to examine differences in terms of financial performance and other governance outcomes such as an ethical culture, good performance, effective control and legitimacy.