Separation of Owners from Controls in Large Firms
The owners of a corporation are its stockholders. In large corporations there might be upwards of one million individuals owning stock in the company, and clearly not all of these persons can participate in the day-to-day decision-making of the firm.
Corporate Organization
The organization of the corporation from the point of view of its decision-making is as follows.
Board of Directors
There is an overall governing body of the corporation known as the board of directors. The board of directors is elected each year at the annual meeting of the stockholders. Although rules differ from state to state and from company to company a typical voting procedure is to allow one vote per share for each shareholder, to be cast for each member of the board.
The board is responsible for the general policy of the company, e.g. formulation plans to achieve objectives. To some extent, the company’s success and the morale of the workers is dependent on the leadership of the board of directors.
The President
The Board of directors in turn appoints the top management of the corporation, particularly the president of the corporation (or the managing director, sometimes called the chief executive officer, or CEO), sets the president’s salary, and decides on certain major questions, such as the issuance of more stock and/or bonds, amounts to be allocated to investment in plant and equipment and the like. But the day-to-day operations of the company are in the hands of the president and the individuals appointed by the president to supervise operations.
Use and Abuse of the Corporate Structure
Clearly, some sort of specialization of this type must take place if decisions are to be made effectively. It simply doesn’t make sense to have every pricing, costing and investment decision come before the stockholders as a group. But one consequence of the separation of ownership from control is that the “inside” group of executives (president, chairman of the board of directors, and so forth) pursue their own benefits (salary, stock options — the right to buy company stock at guaranteed prices — “perks” such as company-financed vacations, limousines, apartments) rather than operating the company in the interest of the stockholders.
Except under unusual conditions, however, disregard for the interests of owners of a corporation on the part of the inside group of managers tends to be self-defeating. In the first place, if it is blatant enough, it can produce a stockholder revolt and a proxy battle to wrest control of the company from the insiders. Second, if the company makes less profit than it could under efficient management, this invites other firms into the picture with “takeover” bids, offering the stockholders more for their shares than they can get on the market. After the takeover the management group is ousted, of course. Third, when there is divergence of interest between the managers and the owners this also tends to invite competition into the industry, which generally is against the interests of both the managers and the owners.
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Finally, most top executives of large corporations have compensation contracts that are designed to synchronize the purchase agreements, bargain prices and so forth. All in all, market incentives and contractual incentives act in the direction of eliminating conflicts of interest between the owners and the managers of corporations.
Упражнение 2. Подберите определения (В) к предложенным терминам (А) и переведите.
А
a) a board of directors; b) the president of the corporation; c) stock options; d) “takeover” bids; e) lifespan of the business; f) a capital gain; g) double taxation; h) a personal income; i) a progressive personal income tax rate structure; j) an average income tax rate; k) a marginal income tax rate; l) partnership articles of agreement; m) raising money by public companies; n) a corporation; o) a partnership; p) a proprietorship; q) “perks”.
В
1) a business firm that is chartered by the state, has existence as a legal entity independent of the owners of the corporation, and has the characteristic that only the assets of the firm itself are subject to claim by anyone to whom the firm owes money;
2) the average personal income tax rate rises with income and the marginal rate rises with income as well;
3) a document referring to partnership duties, responsibilities, and sharing of profits;
4) income is first taxed at the corporate level of the individual owner at the time that the corporation pays out such an income to the owners;
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5) The overall governing body of the corporation;
6) the profit that one makes by selling an asset at a price higher than the price at which the asset was bought;
7) a rate that is equal to total income taxes due divided by income;
8) issuing shares and bonds to be offered for sale on the Stock Exchange;
9) the right to buy company stock at guaranteed prices;
10) a firm owned jointly by two or more persons, with the assets of each and every partner subject to claim by anyone to whom the firm owes money;
11) company-financed vacations, limousines, apartments;
12) a one-owner firm, with all of the owner’s wealth subject to claim by anyone to whom the firm owes money;
13) offering the stockholders more for their shares than they can get on the market;
14) a rate equal to the change in income taxes due divided by the corresponding change in income;
15) a lifetime that ends when the owner decides to disband the firm or dies;
16) an income earned by a partnership and split among the partners according to the income-sharing rules of the partnership;
17) the managing director, sometimes called the chief executive officer, or CEO.
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