Modern business is at the crossroads.

On one hand, boards and management argue that shareholders have generic objectives, are not fully informed, have conflicting interests and suffer from a range of other attributes all of which contribute to their “inappropriateness” in determining the destiny of the organisation in which they hold ownership.

This philosophy holds that the board and management are better placed to determine the destiny of the organisation and determine the outcomes that the corporation will deliver. Shareholders who don’t like the way the company is run (so this philosophy goes) can quit the registry and take up ownership elsewhere.

The contrary view held by shareholders, regulators, and certain key associations, maintains that the organisation exists solely to deliver shareholder satisfaction. As such, the organisation is the servant of the owners and all that the organisation does, must in one way or another, enable those shareholder objectives to be fulfilled or enhanced.

Examples abound of management that has taken an organisation down a particular path for a range of seemingly admirable reasons only to find that its owners either flee the registry or whose best interests are seriously damaged.

The problem with boards and management who are beholden to no one except themselves is that they have no reference point against which decisions and strategies can be assessed and determined. An organisation whose principal accountability is to itself is not compelled to maximise owner benefit or even to avoid owner harm if it believes that such a course “is not in the best interests of the corporation.”

The reality of course is, that in some instances, the best interests of the owners are served by the organisation ceasing to exist (sell, merge, divest, etc). Some of the defensive corporate plays recently seen in the US and Australia and largely engineered by boards and management, were no more than attempts to keep the organisation intact demonstrably for board and management purposes rather than in the best interest of the owners.

Corporations that act in other than the best interests of owners represent diminished probability of satisfaction and imply higher risk to their owners. Investors denied access and input will feel vulnerable to the character and machinations of management. They will tend toward other forms of investment where probability of outcome is stronger and where the investor is offered greater accountability from the chosen investment vehicle and less susceptibility to the foibles of individuals.

The implications of this on the entire equity structure of the economy promises to be profound if this crucial issue leads to organisational empowerment from owners.

All corporations must ultimately be accountable entirely to their owners and the outcomes delivered by those organisations must be unashamedly aimed toward satisfying and/or enhancing owner objectives. It is only through the establishment and enforcement of an external accountability on a corporation that owners can start to feel some comfort (but no guarantee) that their organisation is striving to achieve that which its owners intended.