The Structure of Ownership and the Theory of the Firm

Summary

The holder of corporate stock experiences a loss of control over his resources because ownership is so broadly dispersed across large numbers of shareholders that the typical shareholder cannot exercise real power to oversee managerial performance in modern corporations. Management exercises more freedom in the use of the firm’s resources than would exist if the firm were managed by its owner(s), or at least, if ownership interests were more concentrated. Because management and ownership interests do not naturally coincide when not housed in the same person, Berle and Means perceive a conflict of interest, which, with ownership dispersed, is resolved in management’s favor.