Ownership competence

• Date: 01 February 2021
• Author: Nicolai J. Foss,Thomas Zellweger,Todd Zenger,Lasse B. Lien,Peter G. Klein
• Published date: 01 February 2021
• DOI: http://doi.org/10.1002/smj.3222

RESEARCH ARTICLE

Ownership competence

Nicolai J. Foss

1,2

| Peter G. Klein

2,3

| Lasse B. Lien

2

|

Thomas Zellweger

4

| Todd Zenger

5

1

Department of Strategy and Innovation,

Copenhagen Business School,

Frederiksberg, Denmark

2

Department of Strategy and

Management, NHH Norwegian School of

Economics, Bergen, Norway

3

Baylor University, Entrepreneurship,

Hankamer School of Business, Waco,

Texas

4

Swiss Research Institute of Small

Business and Entrepreneurship, Center

for Family Business, University of St.

Gallen, St. Gallen, Switzerland

5

Department of Enterpreneurship and

Strategy, University of Utah, David Eccles

School of Business, Salt Lake City, Utah

Correspondence

Nicolai J. Foss, Department of Strategy

and Innovation, Copenhagen Business

School, Kilevej 12, 2nd Floor, 2000

Frederiksberg, Denmark.

Email: njf.si@cbs.dk

Abstract

Research Summary: Ownership is fundamental to

firm strategy, organization, and governance. Standard

ownership concepts—mainly derived from agency and

incomplete contracting theories—focus on its incentive

effects. However, these concepts and theories neglect

ownership's role as an instrument to match judgment

about resource use and governance with the firm's

evolving environment under uncertainty. We develop

the concept of ownership competence—the skill with

which ownership is used as an instrument to create

value—and decompose it into matching competence

(what to own), governance competence (how to own),

and timing competence (when to own). We describe

how property rights of use, appropriation, and transfer

relate to the three ownership competences and show

how our theory offers a fresh perspective into the role

of ownership for value generation.

Managerial Summary: Business owners own with

different levels of competence, and differences in own-

ership competence matter for value creation. We argue

that ownership competence consists of competence

about what to own (matching competence), compe-

tence about how to own (governance competence), and

competence about when to own (timing competence).

We clarify the role played by each of the three

Received: 15 November 2019 Revised: 1 July 2020 Accepted: 16 July 2020 Published on: 9 August 2020

DOI: 10.1002/smj.3222

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits

use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or

adaptations are made.

© 2020 The Authors. Strategic Management Journal published by John Wiley & Sons Ltd.

302 Strat Mgmt J. 2021;42:302–328.wileyonlinelibrary.com/journal/smj

competences for value creation. We also show how the

importance of ownership competence for value crea-

tion alters depending on ownership concentration, life

cycle effects, uncertainty of the environment, and the

efficiency of resource markets. With our paper, we pre-

pare the ground for a fuller understanding of the strate-

gic role of owners for value creation.

KEYWORDS

assets, economic value creation, ownership, theory of the firm

1|INTRODUCTION

Strategy scholars have long recognized ownership as a vehicle for creating economic value

(Barney, 1986; Denrell, Fang, & Winter, 2003; Dierickx & Cool, 1989). Typically, the role

ascribed to ownership is that it shapes the incentives of those engaged in value creation. For

instance, agency theory suggests that granting ownership to those who otherwise exercise only

delegated control over resources creates high-powered incentives for effort that mitigate moral

hazard (Amihud & Lev, 1999; Daily, Dalton, & Rajagopalan, 2003; Jensen & Meckling, 1976;

Rajan, 2012; Shleifer & Vishny, 1997). In addition, incomplete contracting theory argues that

granting such ownership provides incentives to invest in assets and resources and circumvents

opportunistic bargaining or holdup (Hart, 1995; Klein, Crawford, & Alchian, 1978;

Williamson, 1985).

However, ownership has another less emphasized, but more obvious economic function.

Ownership implies irrevocable control over resources, which may be particularly valuable when

coordinating resources under uncertainty (Coase, 1937; Foss & Klein, 2012). In particular,

owners gain residual control rights over resources—rights to decide resource use in conditions

not specified by prior agreement (Hart, 1995). This control afforded by ownership allows

owners to deploy resources in novel ways: acquiring and selling resources, investing in them, or

recombining them according to the owners' unique, idiosyncratic, and ultimately inalienable

beliefs about paths to value creation.

Building on the notion that ownership affords control in resource deployment, we develop

the argument that ownership can be exercised with greater or lesser competence and that this

matters to value creation. The dominant incentive view of ownership ignores such variation in

competence and misses the fact that competence may be imperfect and differently distributed

across owners (Foss & Lien, 2010). The incentive view of ownership implicitly assumes acto rs

are homogeneous, and therefore ownership simply motivates and shapes behavior. For exam-

ple, incomplete contracting theory assumes that whichever decision-maker plays the ownership

role will exercise this role efficiently by managing and investing in assets in ways that maximize

economic value (e.g., Hart, 1995: chap. 2). But, in actuality, strategies for creating maximum

value, including the governance arrangements that support such paths, are not widely, com-

monly and correctly understood (Denrell et al., 2003). For this reason, matching assets to indi-

viduals who can create most value with them (i.e., the efficient owners) is not automatic, and

assets routinely end up in the hands of less efficient owners. We argue that changing who owns

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