Minority directors: A review of determinants and consequences and suggestions for future research

Abstract

In contexts characterised by high ownership concentration, an important corporate governance issue is represented by the so-called “principal–principal conflict”. Indeed, the separation between control rights and cash flow rights, the widespread use of control-enhancing mechanisms, and the concentration of voting rights can generate significant costs related to the potential appropriation of private benefits of control. In such contexts, independent directors as an internal mechanism for good corporate governance practices may lack the mandate, the incentives, and the ability to be an effective monitoring mechanism. For these reasons, academics have recently started focusing on minority directors (i.e., directors directly appointed by minority shareholders) as a mechanism to promote greater directors’ accountability and ease tensions between corporate controllers and outside investors. Relying on the preliminary evidence of this research strand, the aim of this paper is to propose a systematization of determinants and consequences related to the appointment of minority directors. As for the determinants, previous literature turns out that the appointment of minority directors mainly depends on internal corporate governance and ownership structure characteristics. As for the consequences, previous studies highlight an overall positive impact of minority directors on corporate governance practices, financial performance, corporate transparency, and financial reporting quality. Therefore, this paper is of interest to academics, as well as practitioners and regulators, as it provides an academic framework related to the appointment of minority directors on which insights for future developments depend