Submitting InstitutionLondon Business School
Unit of AssessmentBusiness and Management Studies
Summary Impact TypeEconomic
Research Subject Area(s)
Commerce, Management, Tourism and Services: Accounting, Auditing and Accountability, Banking, Finance and Investment
Law and Legal Studies: Law
Summary of the impact
Julian Franks has studied corporate governance with reference to
international experiences. He
has revealed that free-rider problems in the dispersed ownership model
(large corporations with
many small shareholders) generate dysfunctional outcomes; concentrated
ownership models (such
as family businesses) fare better. Activist investors have a role to play,
and corporate governance
practices should reflect this. Via the Corporate Governance Centre at LBS
he has conveyed these
key evidence-based messages to business leaders and regulators in the
United Kingdom and
elsewhere. In summary: this research has enabled corporate leaders to
make better governance
decisions and has alerted regulators to the governance risks which
require most scrutiny.
This research has been led by Julian Franks; he has been a Professor at
LBS throughout. The
research programme stretches back over two decades; for example, Mayer and
early work on corporate ownership and control in Economic Policy
in 1990. The references listed
here are examples from 2001-12 of more recent contributions to this
programme. Julian's coauthors
Stefano Rossi, Paolo Volin, and Hannes Wagner were based at LBS
during this research.
The Franks programme has asked these questions: (i) How does and did
and control vary internationally and dynamically? (ii) How do governance
patterns interact with the
regulatory environment? (iii) What lessons can be fed back to corporate
leaders and regulators?
In answer to (i), the Anglo-American "outsider" system has dispersed
ownership across large equity
markets, and active takeover markets for corporate control;
continental "insider" systems have
fewer quoted companies, focused ownership, and less frequent takeover
(2001) provides an in-depth study of German corporations, and
traces the history of German corporate ownership and control. Whereas
family ownership declined
over the 20th century, other companies and banks emerged as the
with banks holding shares primarily as custodians. Franks-Mayer-Rossi
(2005, 2009) trace the
experience in the United Kingdom. Family ownership was rapidly diluted in
the twentieth century. Families retained control by occupying a disproportionate number of
board seats, but hostile
takeovers and institutional shareholders made this increasingly difficult.
The result was a regulated
market in corporate control that looked very different from its European
Answering (ii), an international comparison is provided by
Franks-Mayer-Volpin-Wagner (2012). In
"outsider" countries with strong investor protection, family firms evolve
into widely held companies.
With the weaker investor projection of "insider" countries, family
control persists. In "outsider"
countries family control is concentrated in industries that have low
investment opportunities and
low merger and acquisition activity. In "insider" countries family control
is unrelated to external
financing needs, suggesting that financial institutions adapt to serve
Turning to (iii), in an "outsider" country a mechanism for control is the
threat of takeover. However, Franks-Mayer (1996, Journal of Financial Economics) suggests that
takeover threats are
ineffective. In contrast, evidence for the effects of shareholder activism
is reported in Becht-Franks-Mayer-Rossi (2010): this is a unique analysis of private
engagements by a large activist
shareholder, the Hermes UK Focus Fund (HUKFF). In contrast with previous
substantially outperforms benchmarks as a result of shareholder activism
private interventions that would be unobservable in studies purely relying
on public information.
In summary, the listed outputs are samples from a wider programme which
has empirically documented the patterns of ownership and control. Those patterns show that the
regulatory environment and corporate ownership structures move together. Other aspects of
the research reveal the
governance mechanisms via which corporate performance can be influenced.
References to the research
"Ownership and Control of German Corporations," Julian Franks and Colin
Mayer, Review of Financial Studies 14(4), 2001, pp. 943-977.
"The Origins of the German Corporation—Finance, Ownership and Control,"
Julian Franks, Colin
Mayer, and Hannes F. Wagner, Review of Finance 10(4), 2006, pp.
"Spending Less Time with the Family: The Decline of Family Ownership in
the United Kingdom,"
Julian Franks, Colin Mayer, and Stephano Rossi, in A History of
Corporate Governance around
the World: Family Business Groups to Professional Managers, National
Bureau of Economic Research and the University of Chicago Press, November 2005, pp. 581-611.
"Ownership: Evolution and Regulation," Julian Franks, Colin Mayer, and
Stephano Rossi, Review
of Financial Studies 22(10), 2009, pp. 4009-4056.
"The Life Cycle of Family Ownership: International Evidence," Julian
Franks, Colin Mayer, Paolo
Volpin, and Hannes F. Wagner, Review of Financial Studies 25(6),
2012, pp. 1675-1712.
"Returns to Shareholder Activism: Evidence from a Clinical Study of the
Hermes UK Focus Fund,"
Marco Becht, Julian Franks, Colin Mayer, and Stephano Rossi, Review of
Financial Studies 23(3),
2010, pp. 3093-3129. dx.doi.org/10.1093/rfs/hhn054.ra
Evidence of quality. The Review of Financial Studies (RFS)
is a "top three" finance journal, rated
as "4?" by the Association of Business Schools (ABS). The Review
of Finance is a distinguished
finance outlet with a "3?" rating by ABS. Item (e) is from a
prestigious National Bureau of Economic
Research conference. All outputs are highly cited, attracting 1500+
"google scholar" citations.
Funding examples. The LBS research on corporate governance was
supported by ESRC grant
RES-060-23-0004 from 2006-10. The earlier (2001) Franks-Mayer work was
supported by the EU
Training and Mobility of Researchers Network, contract FRMX-CT960054.
Details of the impact
Context. The research was developed in the light of events such as
the failures of Enron (in 2001)
and WorldCom (in 2002) and later the financial crisis of 2007-08, which
undermined the (once
widely held) view that Anglo-American model—listed firms with shares
widely held by institutional
investors and monitored by a board of independent directors—is the best
form of organisation.
Impact platform and channels. Julian Franks founded the Corporate
Governance Centre (hence-forth "the Centre") at LBS. It is a focal point for corporate governance
research, and a platform to
enable communication of the research output to both academic and
The main channel for the impact has been the direct interaction between
Julian Franks and beneficiaries of the impact. In the context of extensive interaction,
documented below, he has directly
used the knowledge and expertise derived from his long-running research
Beneficiaries. Franks and the Centre use LBS research to examine
the effectiveness of capital
market mechanisms for developing and sustaining trust between boards,
investing institutions, regulators, and the public. The Centre is also a
vehicle for discussing these
issues with policy-makers and regulators. The stakeholders listed here are
the key beneficiaries.
Policymaking. Franks has used his research directly in
policymaking exercise: each contribution,
consultation, or evidence provision was driven by the evidence-based
research on corporate governance reported here. The following reports, reviews, and roundtables are
events to which he contributed. This non-exhaustive list gives ten
(i) Walker Report: a review of corporate governance in UK banks and other
(ii) Breedon Committee: a taskforce that examined barriers to alternative
(iii) Liikanen Group: the high-level expert group on reforming the
structure of EU banking.
(iv) Kay Review: review of UK equity markets and long-term decision
making, led by John Kay.
(v) Vickers Commission: a government into possible reforms to the UK
(vi) Hogg Report: a review of the effectiveness of the Combined Code on
(vii) House of Lord Committee on Banking Standards: evidence on bank
(viii) UK Treasury: discussion of reform with respect to the state of
(ix) Bank of England: private roundtable on the governance of banks.
(x) Centre for the Study of Financial Innovation: roundtable on
governance and listing rules.
Beyond this list, Franks has participated in European policy making:
examples include a workshop
on the European Commission Action Plan on Company Llaw and Corporate
Governance in 2013,
where he spoke on the future of governance regulation and chaired a panel
discussion, and a
seminar to the European Commission on shareholder activism in 2012. The
latter seminar was
directly related to the underpinning research of Becht-Franks-Mayer-Rossi
Impact events. Franks and the Centre have been involved in and
hosted events which have been
used to communicate the findings of the research to beneficiaries.
(i) In October 2008, the Centre provided a platform for leading figures
from the City and regulatory
communities. Stakeholders here included Hector Sants (CEO of the Financial
and the leaders of UBS and JP Morgan investment banks.
(ii) In June 2009 Lord Myners, Financial Services Secretary to HM
Treasury, asked the Centre to
host a major Colloquium: "Boards and Investors: Mutual Obligations and
Enhanced Responsibilities." This served as a major policy forum attended by senior managers,
and senior investors, in the context of the Walker Report and the Hogg
Code. Attendees included
Lord Myners, Sir Martin Sorrell (CEO, WPP), Sir John Rose (CEO, Rolls
Royce), Xavier Roulet
(CEO, London Stock Exchange), Baroness Hogg (Chairman, 3i), David Pitt
David Jackson (BP) and Dr. Antonio Borges (Hedge Fund Standards Board).
(iii) A second event was convened by Lord Myners and the Centre in
December 2009 to discuss and collect feedback on the Hogg and Walker reports. Over 50
attendees included Marcus
Agius (Chairman, Barclays), Keith Skeoch (CEO, Standard Life), Sir David
Walker, David Blitzer
(Senior Managing Director, Blackstone), Gordon MCcullum (CEO, Virgin
Group), Niall Fitzgerald
(Thomson Reuters), Patricia Hewitt (BT Group), Richard Burrows (Chairman,
BAT), David Tyler
(Chairman, Sainsburys), and Roger Carr (Chairman, Cadbury).
Sources to corroborate the impact
Kay Review: Julian Franks is cited on page 89 of the final report.
(i) Liikanen Report: a member of the Liikanen Group.
(ii) Vickers Commission on Banking: the Chair.
(iii) Parliamentary Commission on Banking: a contact at the House of
(iv) Bank of England private roundtable: the Executive Director,
(v) Breedon Committee: a contact at the Department for Business
Innovation & Skills.
(vi) CSFI City Roundtable: the CSFI Director
The underpinning research of this study by Franks has been featured in
the international press,
including the Financial Times, the Economist, and the Wall Street Journal.
FT examples include
"The familial model finds favour once in the classroom," 1 April 2013;
"Traditional investors adopt
harder line," 6 May 2013. "The City drive to help small investors goes
much too far," 27 June 2013.