What I look for in corporate performance: rationality and fairness-may not seem exacting standards, but few business managements appear able to consistently meet them.

• Author: Miller, William H., III

I want to offer some perspective on management performance and on how managements can better discharge their responsibilities to shareholders.

Managements may not like it, or think it desirable or socially useful, but institutional shareholders are slowly yet inexorably reasserting the rights of control that go with ownership. If managements are to have the freedom they desire and need to conduct the affairs of their companies, they increasingly will have to satisfy, or at least mollify, their large, active, and sometimes restive institutional shareholder base.

Every institutional investor with a long-term perspective must confront the issue of evaluating management performance. If we can assume that managements' principal long-term goal is to maximize shareholder value, we can construct a framework for evaluating management behavior. That the prime objective is to maximize shareholder value may seem obvious and unexceptional. It has long been assumed in corporate law, tradition, and policy. The Business Roundtable acknowledged as much in its report "Corporate Governance and American Competitiveness." But the point is not without its critics, going back at least to Berle and Means.

Most critics argue that the corporation has important and social and public purposes that may take precedence over the rights of owners, or that owners' interests ought to be "balanced" with those of other constituencies, such as employees and the community. I will not join that controversy except to note that even the most vociferous proponents of shareholder value acknowledge the need to consider the interests of other stakeholders. To do otherwise would inevitably reduce the long-term value of the enterprise.

I believe that most managements are reasonably diligent and honest and genuinely work to further what they believe are the best interests of the corporation and its various constituencies. Managements seem to assume, though, that if they sincerely serve the corporation's best interests, they are also serving shareholders well. For this to be so, owners and management would have to have identical interests. They do not.

Management's principal interest is in the health, continuity, and growth of the enterprise. The shareholder's main concern is an adequate return on his or her investment relative to risk assumed and to other investment alternatives. Management's future is much more closely tied to a single enterprise than that of stockholders. The...