Unformatted text preview: do the perspectives and motives of the
manager and absentee owner differ?
Because their goals may not coincide, there is a natural conﬂict of interest
between the manager and the absentee owner. If both parties seek to maximize
their self-interest, the manager may not always act in the best interest of the
owner. For example, the risk exists that a manager may follow the example of
Tyco Inc.’s former CEO Dennis Kozlowski, who spent Tyco funds on excessive
personal beneﬁts such as $6,000 shower curtains, or Andrew Fastow, the former CFO of Enron, who pleaded guilty to manipulating the reported earnings
of Enron in order to inﬂate the price of the company’s stock so that he could
earn larger bonuses and sell his stock holdings at artiﬁcially high prices. The
owner can attempt to protect him or herself against the possibility of improper
use of resources by reducing the manager’s compensation by the amount of
company resources that the owner expects the manager to consume. But rather
than accept reduced compensation, the manager may agree to some type of
monitoring provisions in his or her employment cont...
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This note was uploaded on 12/08/2012 for the course ACCT 564 at Washington University in St. Louis.