Seperation of Ownership and Control:

The main problem of the seperation of ownership and control were identified in (1838) by Smith:

                                                       "The directors of such companies [Joint stock companies] however being the managers rather of other peoples money than of thier own,it cannot well be expected that they should watch over it with the same anxious vigilance[as if it were their own]'.

The Work of Berle and Means(1932) is often cited as providing one of the fundamental explanations of investor and corporate relationship.Berle and Means work highlighted that as the countries industrialised and develop their markets,the ownership and control of corporations became seperated.This was particularly the case in the US and the UK where the legal systems have fostered good reputation of minority shareholders and hence there has been encouragement for more diversified shareholder bases.

                   However,in many countries especially where there is a civil law code as opposed to common law the protection of minority shareholders is not effective and so there has been less impetus for a board shareholder base.The common law system builds on England's medieval laws whilst the civil law system is based on Roman law.A succinct comparison of the two legal system is provided by wessel(2001) who states that 'common-law countries-including the US and other former British colonies-rely on independent judges and juries and legal principles supplemented by precedent-setting case law,which results in greater flexibility whilst in civil law countries-which include much of latin America-judges often are life-long civil servants who administer legal codes packed with specifics rules,which hobbies them in their abilities to cope with change'.

                        In countries with a civil law system there is therefore more codification but weaker protection of rights,hence there is less encouragement to invest.The relationship between ownership and control outlined by Berle and Means is largely applicable to the US and the UK but not to many other Countries.This was highlighted by La Porta et al.(1999) who found that the most common form of ownership around the globe is the family firm or controlling shareholders,rather than a broad shareholder base.

We cannot underestimated the Berle and Means work as it has coloured the thinking about the way companies are owned,managed,and controlled for over seventy years and represents the reality in many US and UK companies.Monks(2001) states

                             "The tendency during this period [the twentieth century] has been the diltion of the controlling blocks of shares to the present situation of institutional and widely dispersed ownership-ownership without power."

In the last few years there has been increasing pressure on shareholders,and particularly on institutional shareholders who own shares on behalf of the "man in the street",to act more as owners  has come about because there have been numerous instances of corporate excesses and abuses,such as percieved overpayment of directors for poor performance,corporate collapses and scandals which have resulted in corporate pension funds being wiped out,and shareholders losing their investment.The call for improved transperancy and disclosure embodied in corpoate governance codes and an international accounting standards,should improve the information asymmetry situation so that investors are better informed about the company's activities and strategies.

                                 Once shareholders do begin to act like owners again,then they will be able to exercise a more direct influence on companies and their boards so that boards will be more accountable for their actions, and in that sense the power of ownership will be returned to the owners(the Shareholders).Useem(1996) highlights though that institutional investors will ultimately become accountable to 'the millions of ultimate owners...who may come to question the policies of the new powers that be.Then the questions may expands from whether the professional money managers are achieving maximum private return to whether they are fostering maximum public good.Their demands for downsizing and single-minded focus on shareholder benefits-whatever the costs- may come to constitute a new target of ownership challenge.'