The ownership and management, both are important. However, they must remain distinct. If the lines of demarcation are smudged between the two, the result will inevitably be a corporate chaos. They must remain exclusive. In a text book parlance: Ownership provides the long-term vision, Capital, and takes upon itself ultimate accountability; while, it is the management that executes the Ownership’s vision through everyday operations in a unified and coordinated fashion.
Ownership must set out in clear and in an unambiguous manner of what the purpose of the institution is. It must reduce in writing what they envisage as the “Vision” and long-term strategy of the organisation. Ownership has also an obligation to set in place, in the very initial stages, the “Values” they would like to adopt and pursue. This is important because it leads to the development of management/corporate culture and ethos.
The issue of conflict between ownership and management is not restricted to just the private sector; it extends to State-Owned Enterprises (SOEs) too. But the nature of conflict is usually about power sharing between the two.
The very mention of SOE in our context conjures images of an organisation that must be necessarily non-profitable, infested with corrupt human resources, almost non- operational and above all being in the ICU, with all the tubes and apparatus plugged in to keep it alive artificially. But that’s not the case of SOEs in other parts of the world. Almost every single SOE in our country has become a ‘white elephant’.
State-owned enterprises in fact offer to their counterparts great dosage of comfort that they are dealing with an entity where the “State” takes full responsibility for all its actions and transactions. While I was in Hong Kong, our internal credit rating of the borrower would be at its zenith, if it was a State-controlled and State-owned company. Some of them had governance issues arising largely out of lack of understanding of international financial transactions, but mostly, they were all well led and managed. Entities from People’s Republic of China were sought after for business because of State ownership. That’s true of India also, where significant business organisations are state owned, but their management is free of state control, especially when it boils down to taking business decisions.
Ignoble objectives of ownership cannot create angelic organisations. The major purpose of any entity must have human goodness and their improvement at heart. The purpose will always determine, of what exactly is expected of the management. While it is the management that must take full responsibility for the overall success of the organisation; any failures lead the accountability process to the doorstep of Ownership. The buck must stop at ownership, because, in the first place, it is their decision to select and choose the management. If that decision turns out sour, the appointing authority must take the blame for any mismanagement. It is this ultimate accountability factor that permits ownership intrusions under the pretext of ‘oversight’ over both the business and the management.
The role of management includes supervision of daily activities, creation of balanced operational structures and hierarchy, delegation of authority and responsibility; hiring of the right quality of Human Resources, setting up financial budgets and objectives and, above all, instituting internationally accepted standards of governance with full transparency and above board practices.
Management has to remain accountable to ownership. This feature, however, has to be exercised with great restraint and caution. This entitlement must be in perfect adherence to the code of corporate governance, where regulatory framework doesn’t allow for interference in the day-to-day running of the organisation. Committed ownership and capable management can together lead to the creation of an organisation that is professionally sound, and is both profitable and sustainable.
In our geography, the inevitability of existence of friction between ownership and management is a given thing. The two set off, well, only initially; however, during the course of journey to, either take credit for success or to affix blame for failure, both attempt to exhale for success and to point a finger in case of failure.
A conflict or an environment of distrust can arise between the management and ownership intrusions several areas. The common concerns of conflict relate to attitude to between an austere orientation or a flamboyant disposition; choosing in preference, between short and long term objectives, the utilisation of profits, its reploughing or its disbursement as dividends, handling temptation between oversight and gross daily interference, the Board, normally, is looked up to for resolution of such type of conflicts.
However, things get murky and dirty when the Board itself is constituted largely of individuals, who are part of the ownership. This is more stark and true in family-owned/operated businesses. If the majority of the board constitutes ownership’s nominations, then the presence of independent directors is really a smoke screen, a complete farce. The independent directors, too, succumb to the idiosyncrasies of the owners and hence, in such situations, the Board is merely a unit that endorses everything that is asked for by the ownership. I have sat on board meetings where the non-family independent directors would indulge in wholesale and lavish praise of the ownership. The board meetings with such quality of participation in my view stand totally comprised more intellectually than merely financially.
In family-owned businesses, where the ‘grand old man’ while setting up the entity(ies) in his youthful years hand-picks and collects a committed and passionate management team, for whom he/ she accords due respect and recognition. Once the offspring enter business, they work alongside the ‘grand-man’ and acquire similar values, work ethics and traits. It is only in the third generation that corporate trouble begins to brew.
The young Turk, the crown prince, or the heir-apparent is made to parachute on to the board: in doing so, merit and competence are shelved into the warehouse of oblivion. Now the young upstart to prove his worth he or she sets the sails to upstage the management since he or she wields authority, they attempt to subdue the management by resorting to favouritism. Such scenarios have been in plenty in our corporate history/local environment. Most of such organisations have perished completely. ‘Such conflicts between corporate managers and their owners have become the name of agency conflicts’ (Ionescu; 2012).
Management and ownership conflicts are more rampant where the law permits majority shareholding of a few members of a single family. Of the 600 plus corporates that are listed on Pakistan Stock Exchange are largely dominated by boards where owners constitute the majority; they are supported by two or three independent directors. By virtue of this, owners have the option to bulldoze any management at will. In such situations, the management becomes totally subservient to the dictates of the ownership. For a healthy growth of the corporate structure, the shareholding percentage of a single family must be restricted to a maximum of 25 percent. The remaining 75 percent should be adequately distributed to achieve reasonable granularity.
Ownership and management must remain in synergy to each other. Any disparity must be quickly recognised and must be brought to the table for negotiation and settlement.
Ownership or management dominance is dependent upon who between the two have greater market recognition. If the management team lends more credibility to ownership, it is obvious that the ownership will remain hostage to the whims of the management. The converse of this can also be a reality. Actually, it is the reverse situation that is more prevalent in our local corporate environment.
The ownership concentration trends and dilution of management importance in Pakistan and other Asian countries will be a subject of a separate piece.
Copyright Business Recorder, 2026
The writer is a Senior Banker & Freelance Contributor