October 07, 2009
The Separation of Ownership from Ownership
Posted by Usha Rodrigues

Steve Bainbridge's post led me to this DealBook piece by Vice Chancellor Leo E. Strine, Jr.  I always enjoy Strine's writing, but one phrase particularly caught my attention:

Most Americans invest with a rational time horizon consistent with sound corporate planning. They invest  with the hope of putting a child through college or providing for themselves in retirement. But individual Americans don’t wield control over who sits on the boards of public companies. The financial intermediaries who invest their capital do. These intermediaries have powerful incentives — in important instances, not of their own making — to push corporate boards to engage in risky activities that may be adverse to the interest of long-term investors and society. That is, there is now a separation of “ownership from ownership” that creates conflicts of its own that are analogous to those of the paradigmatic, but increasingly outdated, Berle-Means model for separation of ownership from control.

It struck me as a catchy way to frame the problem.

Corporate Governance | Bookmark

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