Questions about ownership and control occupy a lot of my cognitive energy. They are also important questions within finance, law, management, and economics. Is separating ownership and control a good idea? Most of modern finance is premised on the idea that it is a bad idea and that the resultant agency problem needs addressed using all sorts of incentives. However, Colin Mayer in Firm Commitment suggests that separating ownership from control may have been a helpful innovation in the evolution of the corporation in that third parties are more likely to enter commitments and contracts with firms which don't have a dominant owner. Along with two co-authors I argue in this article that the ability to separate ownership from control is one of the rationales for the corporation.
As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of