Controlling Stockholders and the Outside Stockholders

There are some important differences of status and possible conflicts of interest between the controlling stockholders and the outside stockholders.

The basic point is that controlling stockholders are not dependent on either the dividend returns or the market price of the shares as the fundamental source of the value of their investment.

The outside stockholder is dependent on one or both of these factors.

This basic difference is of the greatest practical importance in corporate affairs, but so far it seems to have escaped both public notice and judicial notice.


Ref: Security Analysis by Graham and Dodd

The general concept of corporate insiders seems to view them as people who profit from their special knowledge of what is going on, and who benefit at times by being on both sides of business deals with the company.

Whatever its earlier validity, this idea has little present relevance to corporate affairs. Strict interpretation of the laws imputing a trustee's responsibility to those in control, plus constant watchfulness by the SEC, plus a great advance in ethical standards of personal conduct, have combined to eliminate the gross abuses of the past.