Divorce of Ownership and Control

The first step in understanding the behavior of large corporations is to realize that they are mostly “publicly owned.” Corporate shares can be bought by any one, and ownership is spread among many investors. Take a company like AT&T. In 1999, more than 5 million people owned its shares, which were worth almost $147 billion. Rut no single person owned. even 1 percent of the total. Although some of the Large software and Internet companies are , such dispersed ownership is typical of 0 If large publicly owned corporations. . Because the stock of large companies is so widely dispersed. ownership is from control. Individual owners cannot easily affect the actions of large corporations. And while the stockholders of a company elect its board of directors-ea group of insiders and knowledgeable outsiders-sit is the salaried management which makes the major decisions about corporate strategy and day-today operations. The managers have acquired & raining and management skills, and they are much more intimately acquainted with thf”· details of the company.

In most situations. there is no clash of goals between management and stockholders, Higher profits benefit evry one. Rut there are two important potential conflicts of interest between and stockholders. First, insiders may vote themselves large salaries, expense accounts, bonuses; and generous retirement pensions at the stockholders’ . Nobody is arguing that managers should work for the minimum wage, but in recent years some top executives at poorly performing companies have received salaries and bonuses totaling $50 million or . more. Some analysts wonder why American executives are paid many times more than other countries in comparable firms.

A second conflict of interest mar arise in connection with retaining earnings. The managers of a  company have an understandable tendency to hold on to profits and use them to expand the size of the company instead of paying them out as dividends or buying back shares. Rut there may be situations where the profits that are plowed back into a company could be more profitably invested outside the company. In some cases, shareholders would benefit if the company would agree to be taken over by another corporation or to simply liquidate itself and payout the- proceeds. Rut few are the occasions when management gladly votes itself out of jobs and the firm out of business.

[av_button label='Get Any Economics Assignment Solved for US$ 55' link='manually,http://economicskey.com/buy-now' link_target='' color='red' custom_bg='#444444' custom_font='#ffffff' size='large' position='center' icon_select='yes' icon='ue859' font='entypo-fontello']

Share This