Changing ownership structure benefits the performance

Companies with dynamic ownership structures – those that either fragment or concentrate ownership over the years – achieve better results than those maintaining the same structure over time, according to the latest edition of the Osservatorio Imprese (Business Observatory) by the SDA Bocconi Corporate Governance Lab, supported by partners PwC TLS, Banca Generali, and NUO SpA.

In the Italian context, companies that increased ownership concentration between 2014 and 2022 recorded a revenue growth 13 percentage points higher than those that reduced it and a substantial 19 percentage points higher than those maintaining the same ownership structure throughout the period.

Remaining steady leads to nowhere

The Corporate Governance Lab has mapped over 14,000 Italian companies owned by individuals and with revenues exceeding €20M in 2014, and selected a sample of analysis including 2,592 companies (1,296 with a controlling shareholder, 1,296 with multiple shareholders). It then reconstructed all the ownership structure changes of these companies up to 2022.

Changes in ownership structure appear to be quite common. Among the 1,296 companies with more than one shareholder, 627 (48%) changed ownership structure during the period, mostly (501) towards concentration and in 126 instances in the opposite direction.

Companies that maintained the same ownership structure recorded a cumulative average growth of sales revenue of 34.9%; those that reduced concentration grew by 40.2%; those that increased it reached 53.4%. 

“There is light and shade in this data. On the one hand, companies seem to benefit from clarity in ownership concentration, showing performance improvements. On the other hand, the data confirms a certain difficulty in promoting natural ownership fragmentation over time, probably due to challenges in designing more sophisticated governance systems," said Alessandro Minichilli, Director of the Corporate Governance Lab.

“The analysis suggests a tailor-made approach to ownership structures: evaluating different combinations of ownership and governance structures and employing various available tools, such as holding companies, can best reconcile ownership and business needs. However, the challenge continues to be the small average size of businesses,” said Valentino D’Angelo, Coordinator of the Corporate Governance Lab.

The quality of governance

“It was fascinating to observe how high-quality governance amplifies the positive effects of both concentration and fragmentation,” added Daniela Montemerlo, co-author of the Observatory.

In this regard, the Lab has developed a Corporate Governance Index, which measures the quality of companies' governance considering five parameters: the presence of a board of directors (BoD); individual leadership; the openness of the BoD to outside directors; the separation of the roles of Chairman and CEO; and high diversity of the BoD in terms of gender, age, and geographical origin”

Companies that, concurrently with changes in ownership structures, improve this index, achieve better results both in terms of revenue growth (1.5 percentage points more for concentrators and even 17.1 percentage points for fragmenters) and in terms of indebtedness (0.3 percentage points less for concentrators and 3.8 for fragmenters).

The partners

“The SDA Bocconi CG Lab, with which we share the technical-scientific approach, has the merit of covering often underexplored areas of research, that are crucial in the debate on the sustainability of companies over time, such as the dynamics between ownership structure and governance,” comments Fabrizio Acerbis, Partner PwC TLS.

“The results of the Corporate Governance Lab confirm – despite the period of volatility and uncertainty – the direct correlation between dynamic ownership structures and good financial results. This is a concept that becomes increasingly evident in our daily interactions with entrepreneurs on the ground, leading us to develop a specialized advisory service for our entrepreneur clients. The bank's goal is now to integrate the results and best practices identified by the Observatory into our holistic consulting model, and to provide our Advisors and clients with accurate and personalized solutions to manage their corporate assets in a market scenario made increasingly complex by geopolitical uncertainties, inflationary factors, and a complicated economic cycle,” declares Andrea Ragaini, Vice General Manager of Banca Generali.

According to Tommaso Paoli, CEO of NUO SpA: "In an increasingly complex global scenario, it emerges that dynamism is, broadly speaking, an essential tool to promote growth. In particular, the evolution of the ownership structure and, above all, the effect of this evolution on good governance, constitute a critical factor for corporate success.” 

The research team

The research team of the Osservatorio Imprese – Corporate Governance Lab includes Alessandro Minichilli, Daniela Montemerlo, Valentino D’Angelo, Francesca Collevecchio, Joao Pedro Bastos Castilho, Giovanni Di Caprio, and Carlotta Alice Gherardi. 

SDA Bocconi School of Management