Owners vs executives and decisions vs control

• DOI: https://doi.org/10.1108/CG-04-2018-0158
• Pages: 458-470
• Published date: 09 April 2019
• Date: 09 April 2019
• Author: Jon Aarum Andersen
• Subject Matter: Corporate governance,Strategy

Owners vs executives and decisions

vs control

Jon Aarum Andersen

Abstract

Purpose –Some scholars have claimed that CEOs make decisions, while boards of directors control these

decisions by applying the concepts of decision management and decision control. These concepts were

suggested more than 30 years ago and are still applied in corporate governance research. They are now

challenged on the basis of scholarship on corporategovernance and management.

Design/methodology/approach –Corporate governance addresses the authority and responsibility

that boards of directors and executives have. Management theory addresses planning and control in

corporations.

Findings –The relationship between the owners (the boards of directors) and the top managers is

hierarchical. This paper concludes that owners or boards of directors make decisions on main and

strategic goals.Decisions cannot be controlled, but the implementationand outcomes of plans can. The

latter is managers’ responsibility. The terms ‘‘decision management’’ and ‘‘decision control’’ are

undefinedand do not describe what takes placein organizations.

Research limitations/implications –This paper does not containany new empirical data.

Originality/value –Management theory offers clear definitions of decisions, decision-making and

control. The concepts of decision management (initiation and implementation) and decision control

(ratificationand monitoring) neither properly describewho makes major and strategic decisions nor how

and who controlsthe consequences of these decisions.

Keywords Board of directors, Corporate governance, Decision control, Decision management,

Owners

Paper type Research paper

1. Introduction

The alliance of the Volvo and Renault car-manufacturing companies were between the two

largest enterprises in their respective countries for economic purposes which virtually all

industrial experts applauded (Bruner and Spekman, 1998). In 1990, Volvo and Renault

agreed to establish a strategic alliance. It was a decision that had strong support from the

chief executive officer, the top management group and board of directors at Volvo. In 1994,

the general meeting of shareholders voted against the CEO’s proposal to strengthen the

alliance with Renault and decided nullify the alliance. Additionally, the general meeting

elected a new board of directors while the CEO resigned (Enquist and Javefors, 1996). This

case illustrates the relationship between owners and corporate top managers as well as

between decisions and control.

The claims which initiated this article concern the relationship between owners and

managers, on the one hand, and the relationship between the concepts of decision and

control, on the other. Fama and Jensen (1983a) were concerned with the survival of

organizations in which important decision-making agents do not have a substantial share of the

wealth generated by their decisions. The separation of ownership and control raises problems

because owners and managers are not the same persons (Fama and Jensen, 1983b).

Jon Aarum Andersen is

based at the O

¨rebro

University Business School,

O

¨rebro University, O

¨rebro,

Sweden.

Received 27 April 2018

Revised 6 September 2018

12 October 2018

14 November 2018

Accepted 3 December 2018

PAGE 458 jCORPORATE GOVERNANCE jVOL. 19 NO. 3 2019, pp. 458-470, ©Emerald Publishing Limited, ISSN 1472-0701 DOI 10.1108/CG-04-2018-0158