Corporate Control
Corporate control refers to the power and influence exerted by individuals or groups within a corporation to make decisions and shape the direction of the company. This control can be exercised through ownership of shares, board positions, or executive roles. It is a crucial aspect of corporate governance and can significantly impact the strategic and operational decisions of the business.
7 Key excerpts on "Corporate Control"
eBook - ePubWhat's Your MBA IQ?
A Manager's Career Development Tool
- Devi Vallabhaneni(Author)
- 2009(Publication Date)
- Wiley(Publisher)
...For business to be legitimate and to maintain its legitimacy in the eyes of the public, its governance must correspond to the will of the people. Corporate governance refers to the method by which a firm is being governed, directed, administered, or controlled and to the goals for which it is being governed. Corporate governance is concerned with the relative roles, rights, and accountability of such stakeholder groups as owners, boards of directors, managers, employees, and others who assert to be stakeholders. Components of Corporate Governance To appreciate fully the legitimacy and corporate governance issues, it is important to understand the major groups that make up the corporate form of business organization because it is only by so doing that one can appreciate how the system has failed to work according to its intended design. The four major groups needed in setting the stage are (1) shareholders (owners or stakeholders), (2) board of directors, (3) managers, and (4) employees. Overarching these groups is the charter issued by the state, giving the corporation the right to exist and stipulating the basic terms of its existence. Under U.S. corporate law, shareholders are the owners of a corporation. As owners, they should have ultimate control over the corporation. This control is manifested primarily in the right to select the board of directors of the company. Generally, the number of shares of stock owned determines the degree of each shareholder ’s right. Because large organizations may have hundreds of thousands of shareholders, they elect a smaller group, known as the board of directors, to govern and oversee the management of the business. The board is responsible for ascertaining that the manager puts the interests of the owners (i.e., shareholders) first. The third major group in the authority hierarchy is management —the group of individuals hired by the board to run the company and manage it on a daily basis...
eBook - ePubCorporate Level Strategy
Theory and Applications
- Olivier Furrer(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...Chapter 15 Corporate Governance Controlling Top Managers and Meeting Corporate Responsibilities DOI: 10.4324/9781315855578-15 Corporate governance refers to “those administrative monitoring and incentive mechanisms that are intended to reduce conflicts among organizational actors due to differences in incentives” (Lubatkin et al., 2007, p. 43). In other words, governance concerns the structure of rights and responsibilities among the parties with a stake (i.e., stakeholders) in a firm (Aguilera & Jackson, 2003 ; Aoki, 2000 ; Usunier et al., 2011). Corporate governance organizes the relationships among stakeholders, which in turn determine and control the corporate level strategies and performance of firms. Modern corporations, characterized as they are by the separation of ownership and managerial control, use managers as decision-making specialists who act on behalf of the firm’s owners (Berle & Means, 1932 ; Chandler, 1977 ; Demsetz, 1983 ; Fama & Jensen, 1983). As such, they have some latitude (i.e., discretionary power) to make strategic choices that should be in the best interest of the firm’s owners (Jensen & Meckling, 1976). They also are primarily responsible for the performance and sustainability of the firm (Barnard, 1938 ; Fligstein & Shin, 2007). However, self-interested managers may make corporate level strategic decisions that maximize their own personal power and welfare and minimize their personal risk rather than maximizing shareholder value (e.g., Amihud & Lev, 1981 ; Berger et al., 1997 ; Jensen & Meckling, 1976 ; Jensen & Murphy, 1990). In this chapter, we argue that in addition to shareholders, top managers are responsible to other stakeholders and, to some extent, to society at large (Carroll, 1999 ; Freeman, 1984)...
eBook - ePubEnergy Law and the Sustainable Company
Innovation and corporate social responsibility
- Patricia Park, Duncan Magnus Park(Authors)
- 2016(Publication Date)
- Routledge(Publisher)
...Solomon defines corporate governance as the system of checks and balances, both internal and external to companies, which ensure that companies discharge their accountability to all their stakeholders and act in a socially responsible way in all areas of their business activity. 5 This definition is based upon the perception that companies can maximise their value creation over the long term, by discharging their accountability to all their stakeholders and by optimising their system of corporate governance. The Higgs Report also emphasised a strong link between good corporate governance, accountability and value creation thus: ‘the UK framework of corporate governance…can clearly be improved…progressive strengthening of the existing architecture is strongly desirable, both to increase corporate accountability and to maximise sustainable wealth creation’. 6 It was the introduction of limited liability and the opening up of corporate ownership to the general public through share ownership which had a dramatic impact on the way in which companies were controlled. The market system as exercised in the UK and the USA is organised, inter alia, in such a way that the owners, who are the shareholders of a listed company, delegate the running of the company to the company management. In other words, there is a separation between ownership and control. One problem that arises as a result of this system of corporate ownership is that the management do not necessarily make decisions in the best interests of the owners. In finance theory, there is a basis assumption that the primary objective for companies is shareholder wealth maximisation. In practice this is not necessarily the case. It is very likely that company managers prefer to pursue their own personal objectives, such as aiming to gain the highest bonus possible in a display of egoism...
eBook - ePubAirline Governance
The Right Direction
- Victor Hughes(Author)
- 2020(Publication Date)
- Routledge(Publisher)
...In such a fluid environment producing a definition (i.e., a clear complete statement of the meaning) for corporate governance, is difficult. For this book, the term ‘corporate governance’ will mean ‘the rules, laws, policies and practices which govern the operations of a company’. Directors and shareholders In a company the ownership and the operation of the company are separate. This separation is fundamental to the way in which most economies work in the world and arose from the landmark case of Salomon v. A Salomon & Co Ltd. (which was decided by the United Kingdom’s House of Lords on 16 November 1897 with the ruling that the creditors of an insolvent company could not sue the company’s shareholders to pay up outstanding debts owed). This case concluded that a limited company was a separate entity from its shareholders. Essentially the shareholders own the company, although even this statement can be debated because some lenders may have a prior charge over all or some of the company’s assets, and the shareholders appoint directors to run the company for them. This separation produces the need for an approach which allows shareholders to be assured that the company is being well run, however that is defined, and is meeting its objectives, all without the shareholders interfering with the day-to-day operations of the company. The solution to this need is the requirement that the company’s directors periodically and regularly report to the shareholders on the result of the company’s operations and the current financial and business position of the company. In addition, the directors are required to run the company for the benefit of the shareholders. In general, this means they must make decisions in the best interests of the company and exercise independent judgement. They must also use reasonable care, skill and diligence in all matters relating to the company...
eBook - ePubThe Corporation
Growth, Diversification and Mergers
- Dennis Mueller(Author)
- 2020(Publication Date)
- Routledge(Publisher)
...6 Corporate governance In recent years, considerable attention has been devoted to differences across countries in the institutional environments in which corporations operate, and the consequences of these institutional differences for corporate performance. One branch of this literature has been concerned with corporate governance structures. 1 Under the broad heading of corporate governance are usually included (1) the identity and degree of concentration of ownership, (2) the institutional structure by which owners monitor and control managers by means of boards of directors and the like, and (3) the institutional structure for disciplining and replacing managers as, for example, through proxy contests and/or takeovers. A second branch of the literature focuses upon the broader legal environment in which corporations operate. Within this literature would come laws governing a shareholder’s access to various sorts of information about a company, a shareholder’s rights to sue the management for certain actions detrimental to the shareholder’s interests, and so on. 2 Although corporate governance structures are imbedded within the broader legal system of a country and thus are affected by it, the two sets of institutions are not synonymous, as we shall explain shortly. One distinction drawn within the corporate governance literature is between “insider” governance systems in which ownership stakes are concentrated and the major stakeholders are directly represented on the boards that monitor managers, and perhaps in management itself, and “outsider” governance systems in which ownership stakes are dispersed, and owners exercise indirect control on management by electing representatives to the monitoring boards, or perhaps by voting on specific proposals of management...
eBook - ePub- Frank H. Easterbrook, Daniel R. Fischel(Authors)
- 1996(Publication Date)
- Harvard University Press(Publisher)
...5 Corporate Control Transactions The preceding chapters implicitly take “the firm” as a constant. Yet the only constant feature of corporate organization is change. Firms are in motion. They build new plants and enter or retreat from markets. They also change their own structure—setting up new divisions, entering or leaving markets, buying or selling plants, acquiring or being acquired, increasing and decreasing leverage, going public or private, selling stock or buying it back (generally or from particular investors). We call these changes “Corporate Control transactions.” Control transactions may make some investors rich while they leave others unaffected or poorer. For example, owners of controlling blocs may sell at a substantial premium, without any obligation to share the bounty with other shareholders. Firms may make “targeted” repurchases of shares, paying a premium to some investors while not offering the opportunity to others. Managers may arrange to take a corporate opportunity for themselves, with the consent of the directors, or may allocate an opportunity for a family of connected corporations to the firm that can make the most profitable use of it. Mergers set up in arm’s-length bargaining may distribute the lion’s share of the gain to one party, even though both parties to the merger are controlled by the same people. Firms may alter internal structure and the structure of ownership as they please—or refuse to do so—subject only to the fiduciary standard. Managers who live up to the all-purpose duties of care and loyalty face few, if any, additional constraints. These doctrines, and the exceedingly limited judicial role they entail, have run into withering criticism from scholars demanding two kinds of change: an obligation to “share” the gains from Corporate Control transactions, and a prohibition against certain kinds of transactions. (Different critics put different transactions under the bans.) Criticism has had little visible effect on the law...
eBook - ePubRethinking Corporate Governance
The Law and Economics of Control Powers
- Alessio Pacces(Author)
- 2013(Publication Date)
- Routledge(Publisher)
...The analysis of this tradeoff, from both a positive and a normative Law and Economics perspective, will be the subject-matter of the following chapters. Positive analysis will speculate on how corporate law influences the models of corporate governance prevailing in different countries of the Wealthy West of the world. The foregoing analysis of the economics of corporate governance has shown on what basis the efficient structure of corporate ownership should be selected and should then evolve endogenously. However, the legal system determines to what extent that process can take place. On the one hand, legal rules need to prevent the Corporate Controller from expropriating non-controlling shareholders by disciplining the extraction of diversionary PBC. Unconstrained opportunities for stealing would in fact undermine separation of ownership and control. On the other hand, separation of ownership and control need also to be supported by legal entitlements to discretionary management and control safeguards. In this respect, law shapes the actual patterns of corporate governance by vesting ultimate decision-making power in one or more controlling shareholder (through the shareholders’ meeting), or in the corporate managers (through the board of directors). The flip side of the coin is that both opportunities for expropriation of non-controlling shareholders and entrenchment devices available to the Corporate Controller influence, in turn, the evolution of control allocation over time. Through the comparison of some representative systems of corporate governance, I will therefore investigate the corporate law’s role in determining the following: (a) whether the interest of non-controlling shareholders is adequately protected from expropriation; and (b) how control can be exerted by an entrepreneur-manager, how it is maintained and, ultimately, transferred...
