RulesandTrust 195Managers raise funds for corporate enterprise from the investing
public in the form of equity capital or stocks. Investors are regarded
by managers either as partners in the enterprise or merely as con-
sumers.
When seen as consumers, investors are deemed to have tastes
and preferences that are reflected in the prices at which managers
can sell them stocks and other securities. Most of these investors
have little or no say in how a business is operated or even who the
managers will be (other than through annual elections of directors).
Instead they are strangers to the corporation, strangers whose
interests are subordinated to those of the corporation as a whole. In
this type of corporation, for example, managers tend to consider the
tax effects of declaring a dividend or structuring an acquisition deal
on the corporation as a whole but not on the individual shareholders.
In contrast, the voices of individual investors matter more to
owner-oriented managers. Seeing them as partners in the business,
these managers treat investors as members of the enterprise rather
than as strangers to it. Electing directors remains the formal vehicle
for this voice, but a more solicitous view of owner interests is taken.
For example, these managers consider the tax effects of corporate
decisions such as dividends and deals on the investor rather than
on, or at least separately from, the corporation.
It is far easier for managers of family and other small and pri-
vately held corporations to adopt this owner orientation. It is far
easier for managers of large publicly held corporations to adopt the
opposite view. The managers with whom intelligent investors should
entrust their wealth are those who adopt the investor’s perspective
no matter how large the corporation or how many shareholders it
has.
LOCAL GOVERNANCE
The reality of global corporate management means that boards and
managers can run a business for the benefit of many constituencies,
not solely shareholders. Laws permit managers to operate pretty
much wherever they want along the spectrum from a shareholder
orientation to a constituency orientation. One part of business anal-
ysis is evaluating the degree to which management has an owner
orientation.