GENERAL ISSUES

Under the heading of “corporate governance” we include problems arising when an enterprise is owned by more than one owner and managed by a hired managerial group, and also the rules and incentives appropriate to make it function as efficiently and impartially as if it were owned and run by a single owner–entrepreneur. Throughout this essay we shall refer to co-owners as shareholders, thus implicitly referring to joint stock companies; unless otherwise stated, decisional (voting) powers are presumed to be distributed in proportion to ownership. Mutatis mutandis, identical considerations apply to any form of enterprise co-ownership and attribution of decisional powers.

Two basic classes of problems arise in joint stock companies: (i) establishing shareholder control over managerial discretion; (ii) avoiding or resolving conflicts between groups of shareholders that may occur when a controlling interest is vested in shareholders who also have a stake in company activity in another capacity.