A part of the problem related to developing a compatibility between management and strategy lies in the issue of corporate control. There two often conflicting views of corporate control. The corporation is owned by its stockholders. The stockholders exercise ultimate control over the corporation through its board of directors. The daytoday operational control of the corporation, however, is entrusted to the management team hired by the board of directors.
The theory of the firm is held to be the maximization of profit. Certainly, this theory of the firm expresses the goals of most corporate stockholders. Profitable firms are able to (1) return a part of the profits to the stockholders in the form of dividends, and (2) stimulate the market price of the corporation's common stock.
Different perspectives with respect to profit maximization is but one difference that often arises between stockholders and managements. Some managements prefer to maximize factors other than profitmanagerial salaries and the corporate environment, as examples. Maximization of either of these factors tends to conflict with maximization of profit. Therefore, an additional source of conflict between stockholders and management is established. One view of corporate control holds that the real control of a corporation belongs with the operating management and board of directors. The opposing view is that a corporation belongs to its stockholders, regardless of who they are, or how long they have held the stock. In the development of strategy, these opposing views of corporate control must be negotiated, and, for a strategy to be successful in leading to the attainment of organizational performance goals, management must be comfortable with and supportive of the strategy.
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