Whose company is it anyhow?

AS PART OF THE opening week launch in August of the Center for Corporate Governance at the University of Delaware, Charles Elson presented a panel discussion for his students and faculty and administration colleagues. Elson, the Edgar S. Woolard Jr. Professor of Corporate Governance and director of the newly formed center (see main story), invited five representatives from business, law, and the press to address a variety of governance matters to set the stage for the coursework to follow.

On the panel were John Nash, president emeritus of the National Association of Corporate Directors; Ned Regan, president of Baruch College and the former comptroller of the State of New York; Adam Bryant, a senior writer for Newsweek magazine; William Chandler, chancellor of the Delaware Court of Chancery; and James Kristie, editor of DIRECTORS & BOARDS.

Any overview of the fundamental concepts of governance inevitably confronts the question of "Who owns the corporation?" The query sparked an animated exchange among the panelists and audience, an excerpt of which follows.

Charles Elson: Here is what Al Dunlap had to say in Mean Business [the former Sunbeam Corp. CEO's book is used as one of the course's readings], in his chapter entitled "Whose Company Is It, Anyhow?": "The people who invest in a company own it -- not the employees, not the suppliers, and not the community." True or false?

Ned Regan: False, false. Shareholders don't own the company. They own their stock. You can't, as a shareholder, walk Onto the plant property. You can't say, "Make this car this way or that way." You can't do any of that. It's not like owning your house. Now, owning stock gives you certain rights -- but you are not an owner of the corporation.

John Nash: When you look at the big pension funds or mutual funds today, you have to ask yourself, "When is a shareholder a shareholder and when is a shareholder an investor?" From a director's perspective, I wrestle with that.

As a director, I have a duty of loyalty to the corporation, because if the corporation fails what do the shareholders have? Nothing. So my most critical role as a director is to hold the CEO and his management team accountable.

But I am getting very concerned that directors may be going overboard in the monitoring of management. We are seeing a tremendous turnover in CEOs. I just read a statistic that in 1999 there were 802 CEOs fired by their boards. Institutional shareholders who may be unhappy with a corporation's performance want instantaneous gratification.

I...