When a firm decides to sell stock, which financial investors can buy and sell, we call it a public company.

Shareholders own a public company. Since the shareholders are a very broad group, often consisting of

thousands or even millions of investors, the shareholders vote for a board of directors, who in turn hire top

executives to run the firm on a day-to-day basis. The more stock a shareholder owns, the more votes that

shareholder is entitled to cast for the company’s board of directors.

In theory, the board of directors helps to ensure that the firm runs in the interests of the true owners—the

shareholders. However, the top executives who run the firm have a strong voice in choosing the candidates
412 17 • Financial Markets

who will serve on their board of directors. After all, few shareholders are knowledgeable enou
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