The divorce between ownership and management is the most important feature of company management. This is known as managerial revolution.
Independent India inherited a structure of company management which was dominated by the managing agency system and entrepreneurially by some particular business communities and among them again, by a group of families.
During the Second World War and in the following years, there was a spectacular rise in both the number of companies and the volume of paid-up capital. In March 1948 there were 22,675 companies with a paid-up capital of Rs. 570 crore as against only 11,114 companies in 1939 with a paid-up capital of Rs. 290 crore.
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But, along with this expansion, the quality of management started deteriorating and the evils of dishonesty, mismanagement and malpractices also started dominating the corporate scene.
During these years, the corporate management in the large scale sector was characterised by the concentration of ownership and control in the close-knit family groups.
One factor which accentuated this trend was acquiring of the controlling interest by large Indian houses in companies which were formerly European-owned.
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The other notable features during this period were a general movement among managing agency houses to change over from partnership to private companies and again from private companies into public companies; the beginning of a change in the ownership of some European business houses and the consequent partial Indianisation of some of these houses and a general scramble among bigger houses to absorb smaller houses.
The Companies Act, 1956, for the first time, made an attempt to restore the eclipsed authority of the board of directors and shareholders and to subject management to a large degree of government control.
Implicit in the whole scheme of the Act is recognition that the shareholders are the ultimate source of authority in company management but they cannot exercise the powers of actual management which is statutorily recognised as the top management body in a company. During this period the number of companies led by professional managers was very large.
The abolition of managing agency system has not really meant the end of the system of group management or the end of domination by large industrial houses over vast industrial territories.
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In a large number of cases the erstwhile managing agents have entered into various types of service agreements with their former managed companies under which the services of the former are available to the latter in such fields as administrative services, financial services and management consultancy.
In some cases, the old managing agents are serving as secretaries to the formerly managed companies. Some of the managing agency houses have converted themselves into consultancy organisations. In several cases, this represents a genuine effort to break new grounds. For example, the Tatas have set up management consultancy organisation.
Similarly, members of the former managing agency firms or the controlling families have been appointed as managing directors or whole-time directors in the companies managed by them. In some cases, the managing agency houses have merged with the former managed companies thus retaining their control.
For example, six companies of the Binny group got themselves merged into one company at the end of 1969. Thus today there is a growing trend towards merger and amalgamations in the corporate sector.
The separation between corporate ownership and corporate management has become an acknowledged phenomenon in the West. There is no doubt that future development of corporate management in India will also reflect this trend.
Corporate managers will have to hold top positions in the company hierarchy, not because of their shareholding, not because of their family, caste or community background, but because of their education, ability, experience and managerial skill. Such managers will be responsible not only to shareholders but also to slake holders.
The corporate management all over the world is today in quest of a new business ideology. The main question is the imperative need for the general acceptance of the concept of social responsibility of business.
This implies giving due priority to the interests of the society and treating the business corporation as a force for social change.
Business is expected to learn to operate in the new environment created by the government policy and to conform to the broader social and economic goals accepted by the country and to play its role as an agent for achieving these goals.