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Ownership of Corporations

Ownership of Corporations


Many large corporations have a great number of owners, or shareholders. A major company may be owned by a million or more people, many of whom hold fewer than 100 shares of stock each. This widespread ownership has given many Americans a direct stake in some of the nation's biggest companies. By the mid-1990s, more than 40 percent of U.S. families owned common stock, directly or through mutual funds or other intermediaries.

But widely dispersed ownership also implies a separation of ownership and control. Because shareholders generally cannot know and manage the full details of a corporation's business, they elect a board of directors to make broad corporate policy. Typically, even members of a corporation's board of directors and managers own less than 5 percent of the common stock, though some may own far more than that. Individuals, banks , or retirement funds often own blocks of stock, but these holdings generally account for only a small fraction of the total. Usually, only a minority of board members are operating officers of the corporation. Some directors are nominated by the company to give prestige to the board, others to provide certain skills or to represent lending institutions. It is not unusual for one person to serve on several different corporate boards at the same time.

Corporate boards place day-to-day management decisions in the hands of a chief executive officer (CEO), who may also be a board's chairman or president. The CEO supervises other executives, including a number of vice presidents who oversee various corporate functions, as well as the chief financial officer, the chief operating officer, and the chief information officer (CIO). The CIO came onto the corporate scene as high technology became a crucial part of U.S. business affairs in the late 1990s.

As long as a CEO has the confidence of the board of directors, he or she generally is permitted a great deal of freedom in running a corporation. But sometimes, individual and institutional stockholders, acting in concert and backing dissident candidates for the board, can exert enough power to force a change in management.

Generally, only a few people attend annual shareholder meetings. Most shareholders vote on the election of directors and important policy proposals by "proxy" -- that is, by mailing in election forms. In recent years, however, some annual meetings have seen more shareholders -- perhaps several hundred -- in attendance. The U.S. Securities and Exchange Commission (SEC) requires corporations to give groups challenging management access to mailing lists of stockholders to present their views. ---

Next Article: How Corporations Raise Capital

This article is adapted from the book "Outline of the U.S. Economy" by Conte and Carr and has been adapted with permission from the U.S. Department of State.

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