Research Highlights

Who’s the Boss? How Ownership Structure Shapes ESG Performance

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Belen Villalonga Smiling

Overview: In the paper, “Corporate Ownership and ESG Performance,” NYU Stern Professor Belén Villalonga, along with co-authors Peter Tufano (Harvard Business School) and Boya Wang (University of Cambridge), studies whether and how different types of shareholders drive the environmental and social policies and practices of the companies they own.

Why study this now: Companies around the world are increasingly adopting Environmental, Social, and Governance (ESG) practices, and regulators, institutional investors, and consumers are putting pressure on them to do so. On the other hand, in the US, over the past year or two, there has been political backlash against social and environmental responsibility.

Public debate has never been hotter about what corporate purpose should be and whether firms, boards, and managers should serve the interests of corporate shareholders only or those of a broader base of stakeholders.

What the authors found: Using a sample of 3,083 public corporations from 62 different countries over 18 years, the research found that:

  • Ownership matters for ESG practices and performance, which challenges the underlying assumption in most of the strategy and corporate finance literature that strategic decisions such as these are made by the firms’ CEO, and that owners only play a passive role. 
  • Family-owned firms underperform on just about every ESG metric, challenging the conventional wisdom that family-owned firms, because of their long-term view, care deeply about their employees and other stakeholders, and the communities in which they do business.
  • When a family owner has management control through a CEO role (whether the founder or a descendant), the firm’s ESG scores are higher—in the case of descendant-CEOs, the impact is large enough to offset the negative family ownership effect.

What does this change: This research challenges assumptions about which types of owners are best for ESG and encourages owners to rethink their responsibilities to people and the planet.

Key insight: "Our paper sets the record straight by showing that both shareholders and managers matter for their firm’s ESG behaviors and performance," says Villalonga.

This research is forthcoming in the Journal of Corporate Finance.