Corporate "ownership"

The most misleading word in the ongoing debate about the governance and control of large, publicly traded corporations is "owner." In much of the media coverage about takeovers and boardroom shakeups, as well as in the vast academic and policy literature that has sprung up in the past few years in response to these events, the unexamined assertion is made that corporations are "owned" by the individuals and institutions that hold the common stock of the companies. Disputes between corporate managers and shareholder groups are casually said to be about whether managers can be made to do what "the owners" want them to do.

The problem with calling shareholders the owners of corporations is that the word "owner" has such a powerful, almost moralistic meaning in U.S. culture. Its use in this contest cuts off debate by implying that certain rights and prerogatives should, by the very nature of things, flow to shareholders. In so doing, it presupposes the answer to important questions that need to be addressed by those legitimately interested in improving corporate governance--questions about the rights and prerogatives not only of shareholders, but of other participants in the firm.

The Rights and Responsibilities of Ownership

With respect to real property or other well-defined physical assets, to "own" something normally means to have certain rights and responsibilities with respect to that property. These include the right to possess or dispose of the asset, the right to use it in any way not specifically prohibited by law or proscribed by prior contract, the right to receive any returns generated by the asset or the proceeds from its sale, and the responsibility for bearing certain risks associated with possession and control of the asset, including the responsibility for seeing that the property is not used in ways that harm others, or for paying the penalty if it is misused. With physical assets, such as land or buildings or vehicles, we take it for granted that these various rights, prerogatives, and responsibilities are bundled together and assigned to the same party--the owner.

But, as anyone who has spent any time advising Eastern European or former Soviet-bloc countries about privatizing their industries can attest, the fact that these rights and responsibilities are often bundled together in the...