The Independent Review Volume 1, Number 2 Diffuse stock ownership is the rule for large American corporations. It is rare to find a single shareholder with even 10 percent of the stock of a Fortune 500 company. Economists have long been concerned about the possible maladies of this condition, most notably that the corporation might be run to advance the interests and ambitions of its executives rather than to generate value for its stockholders. Fragmented ownership is commonly thought to be the inevitable consequence of corporate evolution.
Scale economies make it efficient for firms to grow large.
Their capital needs eventually expand beyond the resources of individual investors, either because no single investor has enough resources to fund the operation or because individual investors desire diversification and do not want to put all their eggs in one basket. Thus, modern economies appear to face an unsavory tradeoff between efficient firm scale and efficient shareholder control. Mark Roe's impressive book, Strong Managers, Weak Owners, suggests that such a tradeoff may be illusory. Turning received wisdom on its head, he argues that diffuse ownership is not an inevitable consequence of corporate evolution. Rather, in the United States it is the result of a series of political choices over the last century.