The Managerial Revolution

The Managerial Revolution

The formation of the corporate giants at the turn of the century ushered in the managerial revolution. It marked an end to one era of business management and the beginning of another. The passing of Andrew Carnegie from the scene of active business leadership when his interests were merged into United States Steel symbolized the end of the regime of the captains of industry and the dawning of the new age of the professional manager.

The most striking characteristic of the modern manager is his autonomy from owners. In theory, the stockholders elect a board of directors which looks after the interests of the owners by formulating the broad policies of the company and selecting top management personnel. In most large corporations, however, practice is exactly the opposite of theory. The management group selects its own slate of candidates to fill vacancies on the board, and the stockholders merely ratify their choices. The reason for this turnabout is the passivity of the numerous stockholders. They are mainly interested in dividends and the chance for a capital gain in the value of their stock. The average stockholder is indifferent to the board's function of overseeing management as long as the company is not obviously badly managed.

Stockholders generally do not object to management determining its own broad policies. Management men who are members of the board of directors tend to dominate them. This means that, in effect, the managers report to themselves. Since they are in the position of being able to reappoint themselves as officers of the corporation, there seems to be no outside check on their actions.

It is sometimes asserted that the stockholder has been deprived of his rights of control and decision by managers who lust for power. The opposite is true. The stockholder has actually thrust aside his rights of control and decision. The failure of efforts to develop the concept of "stockholder democracy" indicates that nothing can be done to induce him to reassume his rights. They are a burden to him because they are contrary to his purpose in becoming a stockholder (i.e., to earn a return on his investment). If he is dissatisfied with the management of the corporation, he sells his shares and invests in another company . Compared to other groups who have an interest in the corporation-managers, workers, customers, suppliers--the stockholder can sever his relationship with the company with remarkable ease. Therefore, it would be more correct to designate him as a "stockholder-investor" or a "stockholder-depositor," rather than a "stockholder-owner."8

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