Who Pays the Piper? Ownership and Control in Scottish Based Management Buyouts

Abstract

Management buyouts have been seen by some commentators as restoring the owner-manager to the commercial and industrial scene. If correct this presents a novel twist to the long-running sociological debate on ownership and control which sees ownership as separated from control at the individual level. This paper reports results from a study of Scottish-based buyouts which occurred between 1982 and 1989. Only a small proportion of the total buyout finance is raised in the form of voting shares, which does indeed enable the buy-out team, albeit at the personal risk of considerable sums of money, to obtain majority control of the voting equity. However, in firms formerly in private hands, it is often the case that, while the management team retain formal control, they hold a smaller proportion of the voting shares than the previous owners. Crucially, however, the financial institutions, in exchange for providing equity and debt finance, enforce conditions which potentially constrain the owner-managers severely. In the last analysis the overall strategy of the company is too often in the hands of its financiers to allow the conclusion that the management buyout represents the reversal of the separation of ownership and control.