Are Good Managers Required for a Separation of Ownership and Control?

Posted: 9 Nov 2004

See all articles by Brian R. Cheffins

Brian R. Cheffins

University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)

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For diffuse ownership to become the norm in large business enterprises investors need to be sufficiently confident to buy shares. Will investors follow through if serious doubts exist concerning the competence of those managing companies? This paper addresses this question, primarily by examining historical events in Britain. In the UK, ownership separated from control in large business enterprises at some point between the 1950s and the 1980s, a period during which the country's corporate executives were allegedly amateurish and complacent.

The paper acknowledges that the managerial capabilities of British companies improved as the 20th century drew to a close. Nevertheless, legitimate doubts would have existed about the quality of management as share ownership patterns were reconfigured. The paper explains what occurred in the UK by focusing on financial intermediaries such as pension funds and insurance companies. In the decades immediately following World War II, a "wall of money", a "cult of the equity" and a "trapped capital" effect caused by exchange controls fostered institutional demand for shares that outweighed whatever doubts might have existed about the quality of management. Correspondingly, there was a suitable platform for diffuse share ownership to become the norm in the UK's largest companies.

JEL Classification: G30, G32, K22, L22, M53, N24

Suggested Citation

Cheffins, Brian R., Are Good Managers Required for a Separation of Ownership and Control?. Industrial and Corporate Change, Vol. 13, pp. 591-618, 2004. Available at SSRN:

Brian R. Cheffins (Contact Author)

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom
+44 1223 330084 (Phone)
+44 1223 330055 (Fax)

European Corporate Governance Institute (ECGI)

B-1050 Brussels

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