Negligence and profusion

When Ambrose Bierce defined, in his Devil’s Dictionary, the corporation as “An ingenious device for obtaining individual profit without individual responsibility,” it is more than likely that he had in mind the shareholders rather than the managers of the corporation. The distinction was in any case considered academic since owners managed and managers owned their businesses until of course the advent of the publicly traded corporations on the scene, bringing in their wake the much discussed separation between ownership and control.

Almost two and a half centuries ago, Adam Smith had highlighted this divergence of interests, almost with an air of disenchanted resignation, in the following words: "The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own". Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honor, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.