124
E X E C U T I V E O F F I C E R S
M U S T B E F R E E
F R O M A V A R I C E
PROFIT BEFORE PERKS
I
n an ideal business, directors
pursue the company’s
objectives without undue
consideration for personal gain.
Upon election to the board, they
negotiate their salary and standard
perks, and from then on, their focus
is on the success of the business.Yet there is a risk that bosses can
be dazzled by the wealth generated
around them, and work toward
boosting personal gain instead
of the profits due to shareholders.
This situation, known as “the
divorce of ownership and control,”
first arose in the late 19th century,In a public company,
the shareholders
are the owners of
the company.... so it is essential that
managers can be trusted
to act in the interests of
the company, not
themselves.Executive officers must be free from avarice.
Multiple shareholders
cannot run a company,
so they must employ
executive officers to do
this for them.It is not possible
to oversee, in detail,
everything that these
managers do...IN CONTEXT
FOCUS
Equity and performanceKEY DATES
1776 Adam Smith says that
managers will not watch over
a business with the same
vigilance as partners in a
private company would
watch over their own.1932 US professor Adolf
Berle and US economist
Gardiner Means coin the
phrase “the separation of
ownership and control.”1967 Canadian-American
economist J. K. Galbraith says
that shareholders no longer
control the organizations
they legally own.2012 Larry Ellison of US
computing corporation Oracle
Inc. becomes the world’s
highest-remunerated CEO,
when he receives $96.5 million
in pay, shares, and perks.