Engaged Ownership

Chapter 12Allocating Power among Owners, Board, and Management

Thinking about the Allocation of Decision-Making Power

Owners sit at the center of business decision making from the moment the business is created. The question is: What will the owners choose to do with their power—keep it or delegate it?

All decision-making power within a corporation initially belongs to the owners. This may seem counterintuitive in a business world where CEOs and their management teams are the face of corporate strategy and decision making, but owners sit at the center of business decision making from the moment the business is created. The question is what owners will chose to do with their power. Under the public company model, owners generally delegate nearly all decision making except for the right to vote for a slate of directors, to approve the auditor, and the right to approve certain major transactions (such as a sale of the business or substantially all its assets). This system has arisen in response to the popularity of the public company model, where a large and diverse group of owners are making a financial investment, few if any hold a controlling interest, and those who are unhappy with management's decision making can choose to exit by selling their shares in a well-regulated public market.

Government statutes and codes provide a basic default structure for private corporation decision making that is very much in keeping with the public company model. Engaged owners should ...