Divorce Between Ownership and Control

What is it?

• The divorce between ownership and control happens when the owners of a business do not control the day-to-day decisions made in the business

Most common example:

• The majority of shareholders in public companies are not involved in operational decision-making by the companies in which they have invested

Difference between control and ownership:

• Control: Board of Directors

• Ownership: Shareholders

Handling issues:

• Ensure that financial rewards and incentives offered to managers are aligned with shareholder interests- e.g. based on the share price, dividends and profits achieved

• Implement suitable corporate governance procedures to ensure shareholders are protected as far as possible (e.g.through non- executive directors, management remuneration committee)

• Company legislation ensuring that Directors are accountable for their actions to shareholders