Week 10- Corporate Governance

Week 10- Corporate Governance - Corporate Governance...

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Unformatted text preview: Corporate Governance Instructor: Mahka Moeen M&O Department Spring 2012 1 In the last half of the 19th century a new form of capitalism appeared in the United States and Europe. The building of the rail and telegraph systems called for the creation of a new type of business enterprise. The massive investment required to construct those systems and the complexities of their operations brought the separation of ownership from management. The enlarged enterprises came to be operated by team of salaried managers who had little or no equity in the firm. The dynamics of industrial capitalism, by Alfred Chandler Separation of ownership and control Separation of ownership and managerial control allows each group to focus on what it does best: Professional managers are contracted to formulate and implement strategy Shareholders purchase stock; are entitled to income; bear some risk. However, it may lead to agency problems. Principal-agent problem An agency relationship exists when one party (the principal) delegates decision making to another party (the agent) in return for compensation as a decision-making spet who performs a service. Agents (managers) may take actions that are not in the best interests of principals (owners) by selecting strategic alternatives that serve agents (managerial) interests rather than principal (shareholder or owner) interests....
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Week 10- Corporate Governance - Corporate Governance...

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