Future of profit?

A review of economic literature convinced me that the authors of those books do

not recognize an essential difference that exists between a company which is managed by
its owner, and the company which is managed by a person who is neither the owner nor
the predominant co-owner. In both cases the authors insisted on profit as a measure of
business success of the company, regardless of who is placed in the role of managers.
Untruthfulness of that point of view could be easy verified in practice. I speak from
personal experience and on the basis of my long search for general economic conditions
that would suit all companies, i.e. those whose operations are handled by their owners
and those that are managed by persons who are not their owners. The problem that I have
in mind is the following:
(a) No one can successfully manage the operations of any company if they do not
have adequate cash fund from which they will pay the costs of development of the
company. This fund I will call development fund.
(b) Development fund can be made by two different ways: as additional
investment of its owner or as accumulation of the profits that the company achieves from
its business
(c) If the business firm is directly managed by its owner, then that person’s the
entire assets can be used as his development fund. So, the owner, who in this case is also
a manager, may by his autonomous decision finance development of the company relying
on his total assets.
(d) If the company is managed by a person who is neither the owner nor the
predominant co-owner of that company, it is necessary that the development fund can be
derived solely from the current profit which the company achieves from its business.
Would it not be realistic to assume that the development fund could be formed by
supplementary investments of the owners since such a solution would implicitly include
the previous negotiations between owners, on the one side, and manager, on the other
side, which would diminish the manager's autonomy to make decisions? For that same
reason, the manager must have discretion over the process of distribution of profits on
investments and dividends, and also discretion to use formed development funds.
However, this method of distribution has certain unavoidable consequences of which one
does not usually take into consideration.
(e) If a company continuously accumulates a part of the realized profit, the profit
will sooner or later vanish from its balance sheet, or the company will have, time to time,
the great losses of the value of its assets (capital losses). This conclusion is based on the
fact that haired manager will invest the excess cash to any kind of business project rather
than to payment of dividends, because if excess cash is used to pay dividends, manager
will lose development fund without which it can not successfully manage the operations
of the company. By that reason, a company manager who is neither its owner nor the
predominant co-owner cannot follow the profit maximization process because that
process is incompatible with his position as the hired manager.
(f) The appearance of not owners in the role of managers has been created as a
result of the development of ownership structure of companies in the market economy. It
is because only individuals can appear in management roles, while the role of the owner
may be filled by individuals and certain institutions (legal entities). For these reasons, the
owner of a company can directly control its operations only if that owner is an individual,
but not if the owner is an institution or any other company whose operations are directly
managed by an individual who is not its owner. What is said about the owner of the
company applies to the predominant co-owner as well. Thus, if the owner or co-owner is
not a person then the role of managers of such companies must be occupied by a person
who is not its owner or preponderant co-owner. There are no other solutions. For these
reasons, the business efficiency of such companies cannot be expressed in the same way
as that of the company whose operations are directly managed by its owner. Neglect of
these facts leads the market economy to a dead end from which there may not be a way
out in a peaceful manner.
(g) As a possible solution of the problem, I suggest that the business success of
the company can be expressed in the form of added value, and dividends to the owners of
the company be paid as certain proportion of that. Such a solution can applied to all
companies regardless of who is placed in the role their General Manager (CEO). The rest
of produces added value has to be divided among company and its employees.

Coments to be sent to mikatic@interlog.com