Investments, Corporations and Stock Ownership by Management


Nearly seven decades have passed since the publication of Adolf Berle and Gardiner Means “The Modern Corporation and Private Property.”

Yet the question of firm ownership and control still generates an enormous amount of public debate.

In 1932, Berle and Means warned that the separation of ownership and control would destroy the economic foundation on which capitalism was built.

Berle and Means believed that the increasing separation of ownership and control was inherent in capitalist development.

Others expressed concern that a wide variety of tax incentives, antitrust policies, regulations and political pressures, rather than anything inherent in capitalism, would result in strong managers and weak owners.

Managerial ownership of publicly traded firms is higher now than in 1932. (see “Were the Good Old Days that Good?” by Randall Kroszner) Insiders holdings today are on average four times higher, and this increase is true across all firm sizes.

Managerial ownership is only one of many mechanisms that can be used to address the problem of aligning management’s incentives with those of the owners.

Therefore, greater managerial ownership has been accompanied by less reliance on other methods of corporate control, such as i.e. incentive-based pay.

There is a link between firm performance and the level of managerial ownership. The relationship between insider ownership levels and performance has significantly changed over time.


Shareholders have greater incentives to induce managers to change the amount of stock they hold based on the idea that increased ownership would result in improved performance.

As managerial ownership increases, there is more pressure on management to enhance performance.

Good managers will reap even greater rewards from their efforts, resulting in increased productivity, lower costs and new innovations.

While it might be easy to decide that increased managerial ownership may be the right course, this is not always the case …

More insider ownership of the company is not always necessarily better …

There are many costs and benefits that need to be weighed and considered!