Separation Of Ownership And Control

Perhaps the most striking feature of the large corporation is its great number of shareholders (in effect, owners). A major company may be owned by a million or more people, many of whom own fewer than 100 shares. Typically, corporation directors and managers own less than 5 percent of the common stock. Blocks of stock often are owned or controlled by individuals, banks, or retirement funds, but these holdings usually account for only a fraction of the total. By the mid-1980s more than 40 million persons in the United States owned common stock.

With shareholders living in all parts of the country, it is impossible for them to know all details about their business and to manage it wisely. In this situation, effective direct control is in the hands of the corporation's board of directors.

Beyond making policy, the board places operational control in the hands of a chief executive officer (CEO). This person, who may be the chairman or president, usually supervises a number of vice presidents who manage various aspects of the corporation and report to the CEO. The chairman of the board is often an experienced executive who, together with the executive committee of the board, gives advice and approval to the president and many vice presidents. As long as the CEO has the confidence of the board of directors, he or she is permitted a great deal of freedom in the operation of the company.

The makeup and role of the board of directors varies from one company to another. Increasingly, only a minority of board members are internal officers of the corporation. Some directors are selected to give prestige to the board, others to provide certain skills or to represent lending institutions. It is not unusual for the same person to serve concurrently on several different corporate boards.

The board meets monthly or quarterly to consider policy related to operational decisions and to review accomplishments. At annual meetings new directors are added as needed and major policy decisions are made.

Until recent years only a few people would normally attend the annual corporation meetings. They would vote on the election of directors and certain other highly important matters by "proxy," that is by filling out a form and mailing it in. Now, it is not unusual for several hundred to attend. Often they ask management penetrating questions. In recent years the Securities and Exchange Commission (SEC) has ruled that every corporation must send a written notice of the annual meeting to each stockholder. Also, groups that challenge management must be permitted access to mailing lists of stockholders so that all sides can present their views.

When acting in concert, individual and institutional stockholders can have tremendous power over corporate management by selling or buying their shares to drive the price of the stock down or up. Sometimes, by backing dissidents, they can force a change in management.