Difference between Corporation Ownership and Corporation Management
- The widely dispersed ownership of America’s largest corporations has to lead to a separation of the concepts of corporate ownership and control.
- Because shareholders generally cannot know and manage the full details of a corporation’s business (nor do many wish to), they elect a board of directors to make broad corporate policy.
- Typically, even members of a corporation’s board of directors and managers own less than 5% of the common stock, though some may own far more than that. Individuals, banks, or retirement funds often own blocks of stock, but even these holdings generally account for only a small fraction of the total of the company’s stock.
- Usually, only a minority of board members are operating officers of the corporation.
- Some directors are nominated by the company to give prestige to the board, others to provide certain skills or to represent lending institutions. For these very reasons, it is not unusual for one person to serve on several different corporate boards at the same time.
Corporate Board of Directors and Corporate Executives
- While corporate boards are elected to direct corporate policy, those boards typically delegate day-to-day management decisions to a chief executive officer (CEO), who may also operate as the board’s chairman or president. The CEO supervises other corporate executives, including a number of vice presidents who oversee various corporate functions and divisions.
- The CEO will also oversee other executives like the chief financial officer (CFO), the chief operating officer (COO), and the chief information officer (CIO).
- The position of CIO is by far the newest executive title to American corporate structure. It was first introduced in the late 1990s as high technology became a crucial part of U.S. business affairs.
The Power of the Shareholders
As long as a CEO has the confidence of the board of directors, he or she is generally permitted a great deal of freedom in running and management of the corporation. But sometimes, individual and institutional stockholders, acting in concert and with the backing of dissident candidates for the board, can exert enough power to force a change in management.
Other than these more extraordinary circumstances, shareholders’ participation in the company whose stock they hold is limited to annual shareholder meetings. Even so, generally only a few people attend annual shareholder meetings. Most shareholders vote on the election of directors and important policy proposals by “proxy,” that is, by mailing in election forms. In recent years, however, some annual meetings have seen more shareholders—perhaps several hundred—in attendance. The U.S. Securities and Exchange Commission (SEC) requires corporations to give groups challenging management access to mailing lists of stockholders to present their views.