The Philosophy of Ownership

While it is apparent that individual ownership occurring under moral conditions is correct or proper ownership, there is no reason why joint or corporate ownership cannot be equally correct, at least within limits.

For correct ownership to occur, the lines of demarcation designating the owner who exercises sovereign control and authority, and who also is held responsible for the item owned, must be precise. In such case, the owner has obtained the property either by first claim or by subsequent claim, the property is clearly identified and bounded, and the decision-making facility of the owner is unquestioned and unimpaired. No other decision-maker is in a position to intrude between the owner and the item owned.

If two or more persons decide to combine in the ownership of a given item, correct ownership entails the placement of responsibility and authority in a single person. One of the serious problems which often confront joint owners is that this provision is overlooked or purposely left vague and uncertain. If two men combine their resources on a fifty-fifty basis in the purchase of a business, who is the ultimate authority? This question should be resolved before the partnership agreement is entered. If it is not, conflicts of interest arising from the variables of independent value judgments are bound to appear to upset the harmony of authority in ownership. However we like to idealize human relationships, the facts are plainly in evidence. Some one person must act as though he is the owner. Any other partner must be placed in a subordinate position in respect to decision-making. This would be true irrespective of the numbers of partners involved. So long as this fact is recognized at the outset, then correct ownership can ensue. There is, of course, nothing to prevent subsequent shuffling or rearrangements in the matter of ultimate authority. But ultimate or sovereign authority and responsibility must be provided on some basis, or correct ownership is lacking.

This is more difficult, of course, as the number of persons involved in the ownership process enlarges. The problem is most clearly observed in the formation of corporate structures where large numbers of persons, the stockholders, each own a relatively small amount of the corporate body. Most corporations rely at this point upon the democratic process in electing their directors or trustees. But this process is not always as fruitful of favorable results as is fondly imagined. It encourages the introduction of political methods and processes within a business arrangement, which, as much as possible, should avoid any reliance upon a mere weight of numbers in decision-making.

Corporations which sell a very small number of voting shares, which shares are purchased by the original founders and entrepreneurs, will avoid many pitfalls. This is particularly true if the voting stock is owned entirely or nearly so by a single individual. Authority and responsibility in such a case rest correctly upon the primary owner and all additional owners are subordinate. Such a procedure eliminates proxy fights and “raids” wherein control of a corporate structure can be upset by the sudden emergence of an owner who, as a result of his control of a large percentage of voting stock, can actually take over a corporation and oust its management. Certain corporate bodies where the control of voting stock is kept within a family have shown a remarkable facility to survive and to perpetuate successful business policies and practices.

It should be noted that the small investor who purchases a few thousand shares is still the absolute owner of those shares in a given corporation. He may do as he pleases with his shares even though he may not do as he pleases with the corporation. He does not own the corporation, and his purchase of shares is usually predicated upon his anticipation of dividends under the management extant at the time he purchases the shares. He may buy shares in hopes that the value of these shares will rise on the market so that he can sell at a profit. He is actually purchasing shares of a corporation, not shares in its management. His control of his own shares is absolute; his control of the management is essentially non-existent.

It is well known that a bloc of voting stock can be manipulated by one or more stockholders. It is also well known that such manipulating can topple management and replace it. It is also apparent that there is no guarantee that a reorganization performed in this manner will be either malignant or benevolent; the chances are equally good in either direction.

A corporation which sells an extraordinary number of voting shares in the open market is simply asking for difficulties which it can avoid by a more judicious distribution of voting privileges. If the control of the corporation is firmly established in a single person, so that ownership lines are clearly established and maintained, proper ownership and proper management are far easier to preserve. Ideally, a corporation, like a partnership or independently owned business, should have the lines of ownership clearly drawn and maintained without the hazard of unnecessary diffusion.