[T]he effect of the 'managerial revolution' in large companies has been to concentrate power in the hands of boards of directors. Although in theory, and in law, directors are appointed by shareholders, the shareholders are too numerous to act effectively as a body, and have largely acquiesced in effective control by the board of directors. It is only when there is a financial crisis or dissension within the board that shareholders are called upon to exercise power and take decisions. Except in such circumstances the members of the board are free to run the company as they wish.And:
Company law is largely based on the concept of ownership. The ultimate control is seen as residing with it's owners or shareholders... They may, and almost invariably do, delegate management of the company to appointed officers. They may revoke the delegation at any time by changing the articles of association or dismissing those they have appointed. In addition the shareholders' ultimate authority cannot be delegated or overridden in a number of specified areas. These include: appointing the auditors [note this is the first power listed!]... ratifying acts carried out by directors who exceeded their delegated authority... Approving certain payments to directors for compensation for loss of office; agreeing to changes in the capital structure; and putting the company into voluntary liquidation.The report also quotes this excerpt from a 1973 CBI report:
In practice of course, particularly in large public companies, the share looses are often a passive force, exercising their powers on the advice and initiative of the board of directors and rarely initiating action themselves. This is not to say that the shareholders' powers are not important in a few unusual cases, nor to imply that the shareholders are in some way manipulated or bypassed by their directors. It is inevotable that where the shareholders are numerous and diverse, they will in many cases be insufficiently organised and interested to do more than leave thecdetailed business of the company to a board of directors and to professional managers.
The responsibilities of the board to it's employees are today different from but no less important than those which it must accept to it's shareholders. It might be said that they are even more important, at least in the short term, as failure to achieve satisfactory working relationships with employees can put a board in a position where it will have great difficulty in meeting its obligations to it's shareholders.