Who is running the company?

If you asked this question prior to 2006, the response would likely be the CEO. The Board of Directors does have oversight of the company, but they are the same group of people that elected that CEO. In recent years the investors are using an active investment and management strategies which is overshadowing CEOs and the board. In 2006 only 28 directors at public companies in the Russell 3000 Index did not receive a majority vote. In 2011, that number increased to 79.  According to Harvard Business School Professor Rakesh Khurana, “… investors are telling directors who should be the CEO and how management should run the company.”


As I read the articles on this material, it comes down to return. Investors, individual or companies, want to make a return. The return for their investment since 2008 has not met their expectations. It has prompted majority investors to take long hard look at the executive level.  New York hedge fund, Royal Capital Management sent the board of directors a letter directing them to oust former CEO Angela Braly. The letter said “ … financial forecasting process is manifestly dysfunctional, subordinates are openly (and rightly) critical of her performance, and a revolving door of senior management ensures these problems will persist.”  Royal also took steps to discuss this direction with Barrow, Hanley, Mewhinney & Strauss and T. Rowe Price. Although it is not unprecedented that investors push out a CEO, it is uncommon. It is more uncommon that investors collaborate before “imploring” the board to take action.


The other prevailing reason for more active investment strategies is that, control is the primary driver for the investment. Carl Icahn and Bill Ackman are known for their large investments and their investment comes with power and influence. Their role in the company goes beyond investment to authority over the management and crosses the line of who is actually running the company.


The shift of control has major implications on the company’s strategy. By investors selecting the CEO and/or board members, they are shaping the future direction of the company. It can be seen through competitive advantages, shareholder value and their decisions about what to do and what not to do. TPG-Axon’s Singh wrote in his letter to the SandRidge board of directors regarding their role,  “…in instances where we come to believe that management is acting in a manner that is destructive of value, we believe it is important to actively engage.” 


Shareholder value is maximized when the CEO and Board of Directors execute on the right strategy. Investors are now directing the directors on who should be running the company. It is a change in the way the CEO, directors and their investors interact.


QUESTION: If investors are more active in the management of the company, should they also be just as accountable as the CEO?  


Do you think it is within the right of the majority investors to collaborate and oust CEOs from their position? If so how much time does a CEO have to execute their strategy?






3 thoughts on “Who is running the company?

  1. In a way investors are already being held accountable if they are more active in the management of the company. If investors pave the path for an errant strategy, the investors are the ones that lose out financially. I think that everyday investors should not intervene with company strategy, especially the removal and selection of CEOs. Investors are usually given a forum once a year or more to voice thier opinions in the form of shareholder meetings, and that is the only time they should influence strategy. The one exception would be if a CEO is completely incompetent and with every passing day they are making the situation worse and increasing losses.

  2. This is a very tough topic and a great discussion piece. I can see both sides of the argument on this. First, there needs to be a trusting relationship between the CEO and the board. This happens only if there is clear & frequent communication. The board is a great asset for well-defined vision and direction. The CEO is in the day-to-day business and a person can benefit from others not muddle in the daily details by keeping an eye on the “big picture”. A good checks and balance will benefit both the company and its investors. Investors have an opportunity to address the CEO at appropriate times and they always have the option of voting on the performance of the company with their checkbook. While the investors are concerned with one priority, a CEO may be concerned about another and they need to work together for the benefit of the organization. Once the CEO becomes the puppet of the board, it could cause disaster within the organization.

  3. Investors are essentially funding the majority of capital that a company needs and they should have a say in who and how the company is run. Technically I would say that investors are more accountable than CEO’s because if the company does not perform they lose their own money where a CEO just risks losing his or her job. If an investor has invested enough capital to own a large voting stake in an organization then they have enough incentive and ownership stake to not only be accountable but also dictate the direction of management.

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