Welcome address
Ignazio Visco
Governor of the Bank of Italy
Bank of Italy / CEPR / EIEF conference on
"Ownership, Governance, Management and Firm Performance"
Online event, 21-22 December 2020
• It is my pleasure to open this conference on "Ownership, Governance, Management
and Firm Performance" organised by the Bank of Italy together with the Centre for
Economic Policy Research and the Einaudi Institute for Economics and Finance. This
conference bears witness to the Bank of Italy's interest in productivity, the main force
behind aggregate economic growth and welfare improvements.
• The slowdown of labour productivity observed since the financial crisis of 2008-09
clearly has a global dimension. Many, possibly complementary, explanations of this
phenomenon have been advanced. Demographic developments and the evolution of
technical change are certainly crucial determinants of the trends in capital intensity
and total factor productivity. On the demand side, the imbalances between saving
and investment propensities fuelled by financial instability and protracted uncertainty
are often mentioned as culprits of the possible entry into a secular stagnation mode.
• Against the background provided by the most likely reasons behind this sluggish trend,
the policy debate has focused on the identification of possible remedies to contrast
it. Increasing and improving physical infrastructures, investing in knowledge and skills
development, favouring innovation through the adoption of new technologies and
supporting the reallocation of resources between firms and sectors are all triggers
than can help to revitalise our economies. And even if the choice of whether and how
to become more efficient is ultimately made at the firm level, there is no question
that the public sector plays a key role in creating an adequate environment for "doing
business".
• However, we are realising more and more that the evolution of total factor
productivity depends on how production is organised, how technology is adopted,
and how different skills are dynamically combined. Therefore, corporate governance
and management functions are key ingredients of the production process. It is
not surprising that much more attention has recently been devoted to their role
in determining firm performance and, eventually, contributing to economic growth.
In this respect some of the issues discussed in this conference seem to me to be
especially important:
- Ownership and governance shape attitudes toward risk, affecting the
propensity to invest and innovate as well as access to external finance, with
significant effects on firm size. They also define the "incentive scheme" under
which economic agents operate within firms. Indeed, one research topic that
has received wide scholarly attention is family ownership. In general, family
firms are characterised by lower agency exchanges and conflicts, resulting,
on one side, in more information sharing between owners and managers and
yet, on the other side, in more conservative decisions, often leading to less
innovation and lower firm growth.
- Entrepreneurs play a key role, especially in new businesses, in introducing new
products, processes and organisational approaches. However, they face the
difficult task of choosing the appropriate managers. The potentially limited
pool of talented managers can make for a lack of managerial skills, which is
often behind the poor performance of even promising firms.
- Modern management practices deal with the design of monitoring and
incentive schemes that are conducive to an efficient organisational structure.
Much of the productivity gaps, across firms both within and between countries,
has recently been attributed to differences in management practices. What
has, perhaps surprisingly, emerged is that their quantitative effects are
comparable to those brought about by differences in R&D investments, in
the adoption of information and communication technologies or in the level
of education and skills of employees.
• These issues require special attention from both policy-makers and the academic
community and are particularly relevant for the Italian economy. We know how
extraordinarily large the number of small and very small enterprises in Italy is.
We also know that the share of Italian family-owned businesses is similar to that
of other European countries. However, the incidence of family management is
remarkably higher in Italy. In the selection of managers, family background, social
and political connections often appear to hold more weight than competence,
managerial skills and education. This also tends to hamper corporate performance
due to the lack of openness to external talent and modern management practices,
leading to lower firm efficiency and weak propensity to innovate.
• The recent pandemic - a human tragedy with enormous costs for the economy and
society at large - has impacted firms by inducing substantial and rapid changes in
the business environment and in their activity. Even if we still do not have a sufficient
understanding of the lasting effects on sectors of activity and production patterns,
there is no question that companies with a greater ability to adapt and swiftly
re-deploy resources will experience higher chances of survival. In these extremely
uncertain times, intangible capabilities - such as creativity, innovative thinking, and
openness to change - will be crucial factors, highlighting the central importance of
managers in leading the firm through the storm. There is indeed some very recent
evidence to show that better-managed Italian firms have been able to adjust their
organisational processes and activities more rapidly, thus containing the economic
losses caused by the pandemic.
• I would finally observe that drawing policy implications in the field of corporate
governance is very difficult. Policy makers can affect the general environment in
which firms invest and produce, but private firms operating in a market economy
independently take corporate governance decisions. The productivity-enhancing
effects of good entrepreneurs and managers hinge on there being a sufficient pool
of skilled individuals in the population at large. Therefore, investing in human capital
may provide firms with the edge needed to excel in challenging environments.
However, the ability of both firms and individuals to grow and emerge needs to be
adequately fuelled. In this respect, market and labour regulation, the organisational
culture and the recognition received by workers for their efforts and merit play a
crucial role in providing incentives to invest in human capital. More generally, they
foster a more efficient allocation of talent in the economy, with positive welfare
effects for the economy as a whole.
• The studies included in the programme address many of these key issues. The
conference will also cover other topics of long-standing interest in the field, such as
the increasingly debated importance of promoting female participation in leadership
positions. The first invited lecture, in particular, will overview the critical points in
pursuing gender diversity on corporate boards and its implications for the future
of the economy. The second invited lecture will discuss the trends emerging in the
labour market, focusing on the rising importance given to, among the other talents
required of managers, cognitive skills and the ability to coordinate the activities of
their staff.
• Let me conclude by thanking the organisers and the scientific committee for
having put together such a rich and interesting programme and let me welcome
the lecturers, presenters, moderators and all the other participants to this event.
Although the circumstances only allow for a "virtual" format of the conference,
I wish you all fruitful interactions and thought-provoking discussions during these
two days.
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