This Article focuses on the conventional theory that a corporation is owned by its stockholders and argues that the theory retains little if any explanatory or predictive force. After a brief consideration of the need for and function of legal theories in general and the evolution of the stockholder ownership theory, the Article proceeds to describe how the takeover wars of the 1980s brought into high relief the unavoidably conflicting interests of stockholders and managers, owing primarily to the fact that investor-stockholders are free to diversify whereas managers generally are not. Although the stockholder ownership theory is consistent with the duty to maximize stockholder wealth in the context of a sale of the entire corporation, there are numerous situations in which corporation law and norms recognize the legitimate interests of managers and controlling stockholders to the exclusion or detriment (but not both) of public stockholders, including controversies (real or potential) involving stock offerings, poison pills, sales of control, and management compensation. Finally, the Article considers whether the theory of corporate ownership may make a difference in the outcome of real-world controversies, and concludes that it has affected the holding in several recent appraisal cases in which the courts have held that stockholders are entitled to a premium for control even though the transactions at issue did not involve a change of control. Numerous commentators have argued from problems with the stockholder ownership theory to the conclusion that management duty should be viewed as owed to a variety of stakeholder constituencies. Most recently, it has been suggested that the separation between ownership and control may be best understood as a response to team production problems. This Article suggests that a third approach makes more sense, namely, that manager-owners effectively hire public stockholders to provide liquidity and an objective measure of performance (among other things). In other words, going public is not necessarily a result of a need for capital and should not therefore be seen as constituting a transfer of ownership to the public.
Richard A. Booth,
Who Owns a Corporation and Who Cares?,
Chi.-Kent L. Rev.
Available at: https://scholarship.kentlaw.iit.edu/cklawreview/vol77/iss1/8