Contemporary Issue in Accounting - Essay Example

Correspondingly, managers have control but possess relatively small (if any) residual claims.’(Stephen G. Marks, 10 August, 2007, page 694)1 It is said that ‘corporations are easy to create but hard to understand.’(Robert Hessen, 1999-2000)2 The working style of corporations change as such organizations become larger and larger, as only then the intricacies of its decisive feature of separation of ownership and control come to the fore. Apparently this separation of control from ownership feature is the delegation of power from shareholders to managers in best of interests of residual claimants, but this delegation of power also bring a number of complexities and disadvantages for owners that ultimate benefits from it seem so small that entire exercise appear like playing in the hands of managerial omnipotence.

However ‘it is argued that separation of ownership and control and managerial omnipotence must be distinguished. While the separation of ownership and management can be explained as a result of the search for efficient capital formation, managerial omnipotence can be understood as the unintended result of government regulations originally designed to protect shareholders’ property rights from managerial opportunistic behaviors.”( Padilla, Alexandre and Kreptul, Andrei, 5 may 2004)3 In fact, ‘Adolf Berle and Gardiner Means coined the phrase ‘the separation of ownership and control’ in their landmark 1932 book The Modern Corporation and Private Property and it remained the most widely used expression in the voluminous literature on corporate governance.

It refers to their observation that during the 1920s the structure of ownership in large corporations changed from traditional arrangement of owners managing their own companies to one in which shareholders had become so numerous and dispersed that they were no longer willing or able to manage the corporations they owned.’(Donald G. Margotta, Jan- Feb