From “Outside The Ivory Tower”, by Dr. Susanne Trimbath
The final part in a series of blogs to detail the importance of corporate governance to institutional investors; to describe the tension created by their desire to earn extra revenue from stock lending; and to outline the challenges to corporate governance presented by the subsequent lack of accounting for voting rights.
This series of blogs has described a very serious problem. Owners who are managers have day-to-day control over the productive assets of a corporation. When the business is no longer run by the owners, as is the case for modern corporations, the control of the assets (which stays with the managers) is separated from the ownership of those assets. After separating ownership from control, it can be sold off in the public capital markets in the form of stock shares. Shareholders then elect a Board of Directors to represent their interests in the way the company is managed. Boards hire senior management, approve policies, monitor audits, etc. It is through their votes that shareholders are able to influence the profitability of the company, which directly impacts the value of the shareholders’ investment. Shareholders in the U.S. are allowed to vote both for members of the Board and on some specific issues like approving mergers and acquisitions. [entire post]