The Advisors' Blog

A recent review by FCLT Global of 2,100+ global public companies suggests that companies have stronger long-term performance when independent directors have “skin in the game.” Here are a few key takeaways:

Across our analysis, companies with increasing and durable board ownership significantly outperformed over a five-year period. A sustained rise in director equity ownership over that timeframe is associated with:

– 35–40 percentage points higher total shareholder return.

– Approximately 50 percentage points higher risk-adjusted returns.

The data also highlights what happens when ownership declines. Companies where independent directors reduced their holdings saw materially weaker outcomes, including:

– An average decline of 9.7 percent in TSR.

– 11 percent reduction in risk-adjusted returns.

Beyond returns, the research shows that board ownership is linked to how companies make decisions. Higher director ownership is associated with greater investment in innovation, with roughly 3 percent higher R&D intensity relative to revenue. At the same time, companies where directors hold more equity than executives exhibit significantly lower volatility — reduced by more than 50 percent over five years.

However, the report calls out that the positive results hinge on appropriate design of equity ownership plans and holding periods – and those structures aren’t all that common. Here’s another excerpt:

Despite these implications, structured and durable board ownership remains uncommon across public markets. As the next section explores, a combination of short-term pressure, governance norms, incentive design, and investor dynamics has limited the extent to which the evidence on board ownership has translated into practice.

To avoid these pitfalls, the report offers these tips:

The same evidence and practitioner insights that highlight the risks of symbolic or short-lived ownership also point to concrete design features that appear more consistent with long-term alignment.

– Meaningful and sustained equity ownership, typically reflected in holding periods of 5 years or more

– Ownership aligned with the full arc of board service, including expectations that extend through tenure and, in some cases, beyond departure

– Meaningful ownership held by independent directors, supporting effective oversight and long-term perspective relative to executive ownership

– Ownership that is broadly understood and accepted by long-term investors, reinforcing good judgment without undermining independence

– Liz Dunshee