Corporate Governance

Paper Summary:

This paper explains that corporate governance has been successful in drawing public interest because of its being synonymous with takeovers, financial restructuring, and activities of institutional investors. The author points out that, looking at owners as principals and managers as their agents, insight has concentrated on the tribulations, the principals possess in making sure that their agents work in the proper way. The paper relates that, according to the stewardship model, managers are protectors of the enterprise and work industriously to reach increased standards of corporate benefits and investors returns.

From the Paper:

"The second problem infers from the first and is about setting aside suitable incentives to keep the behavior of agent with that of the principal. Since managers don't have reach to residual earnings, their incentives are obtained from other sources. Usually it is contemplated that managers in their pursuit of gratifying their promotional interest and satisfying the goal of augmenting their income attempt to enhance the size of the organization-linking managerial pay with that of the size of the company. Therefore chances subsist that managerial policy may render the organization of taking it ahead of its best possible size and into operations that tends to decease profitability or else deviate from shareholder's benefit. Consequently, in terms of the modern economic theory, difficulties abound as to how shareholders are in command of their agents who are managers and the manner in which they look for placing their individual interests. Concurrently, modern social theory indicates that there are also difficulties as to the situation that other stakeholders stand to loose their financial incentives if the interests of the principals and agents are united."

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