What is the difference between owners and managers

For example, employees in large companies ultimately report to their CEOs. But CEOs also work for someone else — they are accountable to the board of directors of their company and, in publicly traded companies, their shareholders.

On the other hand, owners are typically in complete control of their small businesses and accountable only to their customers. The title of CEO is typically given to someone by the board of directors. Owner as a job title is earned by sole proprietors and entrepreneurs who have total ownership of the business. And CEOs are not always accountable to a board of directors. CEOs often delegate the management of company finances, typically in the millions and hundreds of millions of dollars, to chief financial officers, or CFOs.

This is especially true in publicly traded companies where CEOs are ultimately responsible for ensuring shareholders see returns on their investments. With this comes legal responsibilities to shareholders that include the duty of care and the duty of loyalty — intended to promote transparency and trust and to protect key stakeholders in a business. As the top executive at large companies, CEOs receive guidance from the board of directors as to the vision and goals of the organization.

In the case of private companies, CEOs take direction from the owner s of the company. Either way, it is necessary for CEOs to delegate day-to-day management responsibilities to other top executives to be able to focus on strategies that will drive the success of their business. If a person has a partner with equity in the company, then that person is a co-owner. Owners are in charge of everything in their business, from operations to sales to marketing.

To grow their business, owners must be willing to delegate responsibilities. Here is where hiring and developing people becomes an important skill.

Like CEOs, owners want to ensure the financial health of their business, so they must develop strategies to drive revenue growth. As the business expands, owners may need to put in place other executives to run key parts, like accounting or marketing functions.

So they are responsible for the company and the capital the owners invested. As result managers tend to accept in comparison with corporate owners to accept a lower risk and demand a high safety standard for achieving profits. This way of acting has different reasons:.

Both decision finding in a collegial way and control of the supervisory board are responsible. Actually control does not work in every case like current bank scandals show. The wishes of the whole society, federal government, central bank and the money and tax policy of these institutions have to be considered as decisions of big multinational groups often strong affect a single state.

At least general meeting has control and decision power. So managers are not totally free in their way of acting. At least four offsetting influences will tend to mitigate the dichotomy of interests:. First, any abused passive investor can always sell his share of stock in such a corporation. While this will not save the investor from past personal losses he can at least extricate himself from the abuse. But if the response is widespread, the effect of many small investors selling their stock will put downward pressure on the price of the stock.

A reduction in the price of the stock will surely get the attention of the major investors who do not involve themselves in the decision making of the corporation—the board of directors, if no one else—who can take meaningful action! Second, it is very, very common for managers to be paid in stock options see below, the author. Thus the managers are owners … ; a conjoining of interest! Third, who would the board of directors—as owners interested in profit-maximization—choose to manage their corporate assets?

Especially John C. Bogle states several disadvantages of the management system instead of owner leadership. Of course the actual looting we know about has been small. From this viewpoint the statisticians argue for regulation and denunciation …. The dichotomy of interests which does exist between the owners and the managers; a dichotomy which also exists even with a single owner and a single-employee sized firm. The owner will be diligent in his behaviour, whereas the employee does gain the personal benefits from slacking.

This is the most important reason for implementing stock-option programs in big companies. Logically the management will act in a responsible way and work for better monetary results. As the current shareholders are interested in increased gain, too, the result is a conjoint of interests of both — owners and managers. Since American managers earn millions of Dollars in several years, managers of European companies are likely to change their employer. As an example, the software producer SAP has lost at least 27 top-managers within a relatively short period that were hired by an American competitor.

As a consequence a new and more attractive stock-option program was designed. There are some different ways to implement such a stock participation program. The first way is a stock-option program. If share price has risen, the option owner has realized a profit. Another common possibility that is well accepted by staff and managers is to reserve a part of shares that are placed on market.

Profit performs at least four major functions. First of all, it provides a quantitative measurement of the effectiveness of the business effort.

Second, it provides a return on invested capital; it is rewarding to the owner for assuming the risks of the enterprise. Third, profit is a source of capital for innovation and expansion. And fourth it provides for the costs of staying in business. Profit performs at least four major functions that are —. The doctrine of enlightened self-interest requires a redefinition of stockholder interest.