I have often pondered and occasionally written on American Capitalism.

Capitalism to me means the ability of the owners of the means of production to optimise their benefit (wealth) by managing their assets in a manner that will serve them, whilst at all times complying with all regulations and legislation pertaining to the markets within which they choose to operate.

Although the US boasts that Capitalism is the dominant economic model there, in reality, and for listed companies, it is not. The American publicly listed system is one in which the agents (directors and managers) of the owners (stockholders) rule the roost and not the owners.

The Wall Street fiasco was a great example of where managers (and presumably directors) manipulated products, services and organisational structures to embed performance criteria upon which KPIs were based and against which the directors and managers were rewarded. In fact, the only legacy that stockholders get is increased risk and increased costs.

Intuitively one would expect that small organisations with few shareholders are more “in-touch” with their owners’ objectives than larger organisations. One would further expect that the larger the organisation and the greater the number of shareholders, then the less able the organisation is to keep “in-touch” with all shareholder objectives.

Unfortunately, experience and reality show that companies, irrespective of size, are not immune from the lack of congruence between owner objectives and corporate actions.

The majority of companies are small businesses who have one or a small number of people carrying out the roles of managers, directors and owners simultaneously. One would expect that since one person carries out all three roles then “knowledge” would be “perfect” and congruence would be maximised.

Most small businesses actually have difficulty in ensuring congruence because they are too involved in operational management. It is easier to change the objective than to change the operational, marketing or business realities that threaten incongruence.

Generally boards and management of large corporations maintain that since they have many shareholders with varying objectives and they can’t effectively ask shareholders what they want; the board has the responsibility to define the core deliverables of the organisation. These deliverables are intended to keep shareholders satisfied. For reasons identified earlier, such presumptions by boards are often misplaced because they are subjectively derived. The demonstrable fact is that many (most?) corporations do not know what their owners want in any realistic, practical and measurable way.

In the case of medium size companies where management may be divorced from directorship and/or ownership, it is common to find organisations intent on striving to maximise generic outcomes rather than satisfy specific owner objectives. Certainly, a large part of this lack of congruence is caused by management failing to ask owners what they want; but equally at fault, are owners who have not made the effort of telling management in realistic and measurable terms what it is that they desire from their involvement in the company.

Very few companies, irrespective of size, really know what their owners want. In the case of small business, the owner/manager has rarely defined what it is that is wanted so that it becomes the principal driver of business performance.

The solutions are clear and easy: if you are an owner, even of the largest corporation, make sure that the board and/or management knows what you want in terms of value, benefit, growth and risk. Also identify your objectives in terms of environment, ethical activities and governance issues such as related-parties transactions.

If you are a director or senior manager, ask your owners what they want as an outcome.

If you are an owner/director/manager, then be honest with yourself and what you are doing operationally. Is the company that you run giving or likely to give you the outcome you seek? If not, then its time to assess the options.