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Conflicts of Interest Between Corporations and Their Directors, Officers, Employees and Agents

Richard M. Davis, Proceedings of 8th Annual Rocky Mountain Mineral Law Institute (1963)

CONFLICTS INHERENT IN THE CORPORATE STRUCTURE

The corporate form is a marvelously flexible device which has been ingeniously adapted to its purpose of securing through public subscription the vast sums of capital needed for modern industrial growth. Conventionally, it is owned by shareholders who elect directors; it is controlled by directors who select officers and fix policies; and, it is run by a management elected or designated by the directorsall engaged in a common enterprise united uniquely by the profit motive and regulated by competitive forces and by-laws. Others have written of the fact that this idealized concept, insofar as the reasonably large publicly held corporation is concerned, exists only in legal theory, but, in any event, a brief catalog of some examples of problems of divided loyalties, self-dealing and actual or potential conflicts which inhere in this structure may be helpful.

Shareholders

Although each share (absent preferred, special class, non-voting shares, etc.) is theoretically equal in value [194] to every other share and participates equally in earnings, shares which make up control are worth more than minority shares. A control bloc will command a premium and a small bloc representing negative control may also command a premium. Therefore you always have at least two classes of shareholdersthose who control managemen