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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those of the paradigmatic, but increasingly outdated, Berle-Means model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.
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