Going public often creates an agency conflict between the owner-manager and minority shareholders. One possible way to resolve this conflict is through independent board monitoring. But board monitoring does not arise automatically in IPO companies. Owner-managers tend to entrench and capture the board. Analyzing a sample of French IPO firms, we find that the fraction of independent directors declines if the owner-manager is more powerful. However, we find that large pre-IPO non-management shareholders, such as venture capitalists, are successful in bargaining on board composition. These shareholders are successful in opposing the owner-manager and prevent a further reduction in the proportion of independent directors in the board. We also find that these shareholders contract on board composition in shareholder agreements.

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doi.org/10.1007/s10997-005-4035-8, hdl.handle.net/1765/63057
Journal of Management & Governance
Erasmus Research Institute of Management

Roosenboom, P.G.J. (2005). Bargaining on board structure at the initial public offering. Journal of Management & Governance, 9(2), 171–198. doi:10.1007/s10997-005-4035-8