Corporate Decision Making: Who Controls a Business?

Corporate Decision Making: Who Controls a Business? There are competing interests in mid-sized and larger corporate ownership. Hopefully all parties work toward making the business successful and putting out a quality product. However, these parties often disagree about how to make that happen.

This post about corporate decision making authority will define the interested classes in making decisions. I will discuss the limits and extent of authority for each class,. Finally, I explain why each class has been given the authority allowed to them.

The Interested Parties

There are three “interested” groups of people when it comes to corporate decision making: shareholders, directors, and officers.

First, Shareholders fund the company – they give it money to start and grow, to develop projects, to expand into new markets. Their interest in the company, legally, is to get a good return on their investment. That comes in the form of either of dividends (“share” in the profits, hence the name), or increased share price which can then be sold.

Second, Directors run the company. “The buck stops here” applies to directors. They, as you might have guessed, “direct” how the company operates.

And finally we have the officers of the company. Their interest is in the daily running and long-term success of the business.

Corporate Decision Making Authority: Shareholder Authority

Sparing you the history except for this: states created the corporate business form to allow people to pool their money into investments that any one person could likely not afford to make. Think, designing and manufacturing a car, a television, a locomotive. In exchange for allowing them to pool money without having liability for corporate debts, shareholders technically agree to remain “hands off” the operation of the company.

Thus, shareholder authority in corporate decision making is limited to high level decisions that a money lender could reasonably be expected to make about the money s/he lent, while remaining hands off. The businesses owners, that is, shareholders, pick directors. Shareholders also have limited authority to decide whether to sell the company to a buyer. Finally, shareholders can decide to liquidate the company and split the assets amongst themselves. They get an arm’s length say in how their money is spent.

Last, shareholders appoint directors to act in the interests of the shareholders.

Director’s Give Direction in the Corporate Decision Making Hierarchy

Second, The next level of corporate decision making authority takes place at the director level. As noted, directors “direct” how the company operates. They set the tone, the agenda, approve budgets, hire/fire officers. Directors decide the big issues facing a business, like whether to expand into another product line, or expand geographically by opening new locations. Whether to invest big dollars (investor dollars) in new infrastructure, product development, equipment.

They also hire officers and determine officer salary, and often key employee salaries.

Director’s authority may include whether to let new investors into the business. However, depending on the size of the business, directors may send this decision to the shareholders. It’s their share size that’s being diluted so they should have a say in it.

In short, the shareholders appoint directors to keep an eye on, and wisely spend, shareholder investment money.

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Officers Run the Company

Officers and those vested by them with authority (managers) run the day to day business. The corporate officers take direction from the directors, e.g., “we want to open a new location in Greenville. Here’s our budget and parameters for success. Go do it.”

The officers can hire/fire anyone subordinate to them; they give direction to their subordinates. Officers sign contracts. The overarching purpose of officers when it comes to corporate decision making authority is to implement the broad goals set by the directors. They do it within the budget passed by the directors.


Three groups share different levels of corporate decision making. While they all have the success of the business as their goal, each group can only exercise part of the authority of the corporation. It’s important that the business’ structural documents (Bylaws, shareholder agreements) accurately reflect this division. Everyone involved needs to be clear as to the limits and extent of their own authority.

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