SEPARATION OF OWNERSHIP AND CONTROL

Separation of ownership and control is undermining the very foundations of shareholder primacy



Separation of ownership and control is undermining the very foundations of shareholder primacy

The right definition of stakeholding in Separation of ownership and control is undermining the very foundations of shareholder primacy. However, in support the legal process provides a framework within which the contractual and innovation-based models of stakeholder relations are continuously tested. UK company law, like which of most other common law processs (such as those of north America and the Commonwealth), provides important rights to shareholders as the 'residual claimants' of the company, but currently provides relatively few such rights to other stakeholder groups. The question we wish to examine here is whether the exclusion of stakeholders who are not shareholders from participation in corporate decision-making can be justified on economic grounds.

A highly influential aspect of the company sees it as the focal point of a set of contracts or bargains, of varying degrees of explicitness, through which the wishes of all the stakeholders are expressed. According to this point of aspect, the interests of the different stakeholder groups are best represented (together withreconciled) through bargaining. Company law plays a role in reducing transaction costs by supplying legal rules which operate as a kind of standard form contract, which the parties can modify or adjust to their own particular needs, but which rarely constrain or prohibit private contractual solutions. A principal focus for legal rules of this kind is to reduce the agency costs which arise from the separation of ownership (by shareholders) together with control (by managers). Corporate governance is largely a matter, in this aspect, of addressing the difficulties which shareholders have in controlling managers whose interests together withinformation may diverge from their own. These difficulties are limited wherever institutional investors are willing to intervene to demand changes in management policy.

Investigations of the structure of capitalist enterprise together withsocial classes have been dominated by discussions of the so-called 'managerialist' theory. The industrial revolution together withthe consolidation of industrial enterprises in the mid-Victorian period occurred on a purely entrepreneurial basis, with the banking process being involved only through the limited role which was played by provincial bankers in the provision of short-term overdrafts together withworking capital.

Long-term investment occurred as a result of the plough-back of profits together withthe provision of additional capital by the family, wider kin together withclose associates of the entrepreneur. The major part of the financial process had no direct involvement in industrial finance. Central to this financial process was the complex of financial mechanisms which constituted the City of London, a square mile of banks, agents, brokers together withinsurers which had grown along with the expansion of English overseas trade together withthe needs of government finance during the eighteenth century (Ingham 1984; Scott 1988). The clearing banks, merchant banks together withother City organisations specialised in providing for the needs of foreign trade together withpublic finance. The investment needs of manufacturing industry - to the extent ...