RE: Ownership and Growth

[Shann Turnbull <sturnbull@mba1963.hbs.edu>]

At 05:48 AM 5/11/1999 , Michael Harrington wrote:
>Alan has raised some tough questions and controversial issues here but I'll
>take a stab at them (MY COMMENTS IN CAPS)...
>
>ONE ARGUMENT ABOUT WHY BROADENING OWNERSHIP HAS A NEGATIVE EFFECT COMES FROM
>CORPORATE FINANCE- FROM BERLE AND MEANS [1932]ALL THE WAY TO JENSEN AND
>MECKLING [1976, 1989]. THE SEPARATION OF OWNERSHIP AND CONTROL ASSOCIATED
>WITH DIFFUSE OWNERSHIP GIVES RISE TO AGENCY COSTS IN THE FIRM - MGMT IS
>INEFFICIENT AND SHAREHOLDERS SELL UNTIL A CORP RAIDER STEPS IN AND
>CONCENTRATES OWNERSHIP BY BUYING OUT SHAREHOLDERS, RESTRUCTURES THE BUSINESS
>AND RAISES THE VALUATION. IN THE 1980S THIS WAS THE PATTERN THAT
>RESTRUCTURED THE FAILED CONGLOMERATES OF THE 1970S.  


As a retired corporate raider, Shann agrees with Michael's comment above.
This is why I advocate "Stakeholder" ownership (Refer
http://cog.kent.edu/lib/turnbull6/turnbull6.html) and control to create
what Jeff Gates calls "up close" or "connected" capitalism.  I support
David Ellerman's point made earlier that the pattern of control can be more
important than the pattern of ownership.  To my knowledge, Kelso said very
little about control or ignored it completely.  This is understandable
because his clients were corporate controllers.  The Australian Employee
Ownership Association (AEOA) http://www.aeoa.org.au/home.htm is controlled
by the very largest corporates in Australia and discussion into the rights
of employed shareholders to vote is a delicate if not a taboo topic.  Like
Kelso's clients, members of the AEOA management committee are corporate
executives who mainly want to protect the power of their directors and
their own management discretions.

My short (1005 word) article on the Politics of Governance
http://cog.kent.edu/lib/turnbull2.html I point out that 60% of Australians
share the beneficial ownership of our publicly traded corporations but only
63 managers control about 45% of this ownership!
The concentration in control is even greater in the UK even after their
policies of spreading ownership through privatisation and Personal Equity
Programs (PEPs).  

Another problem identified by the World's leading shareholder activist, Bob
Monks, is that the large pension funds are becoming "Universal Owners"
holding stocks in corporations who are competitors and so if they did
become active in corporate governance they would be seen to have conflicts
of interest!  As pointed in my corporate governance survey
http://cog.kent.edu/lib/turnbull4.html the problem of universal owners can
be overcome through unviversal ownership by stakeholders.  

Howev

Shann Turnbull
P.O. Box 266 Woollahra, Sydney, Australia, 1350
Phone: 02 9328 7466 office; 02 9327 8487 home
Fax: 02 9327 1497 home & office.  Mobile 0418 222 378
Outside Australia, replace first "0" with "61" after international access code
Life long E-mail: sturnbull@mba1963.hbs.edu
http://www.mpx.com.au/~sturnbull/index.html