Corporate Governance Mechanisms Essay -- Business Administration

INTRODUCTIONThe relationship between the sustainers of a company and those who ferment the company is classified as an agent/principal relationship. In near cases this kind of relationship gives rise to a potential problem called the part problem. This agency problem usually will occur where there is a conflict of interest between the desires of the principal and that of the agent. This is not a uncommon occurrence. It has been predominantly found to occur in companies where the directors atomic number 18 the agent and the shareholders who are the owners of the company is the principal. It is not unusual for managers to sometimes want to pursue their own interests at the expense of the company to whom they allow a duty to spiel in its best interest. Certain decision-taking may not be in the interest of the company for example, excessive risk taking without foresight of the farseeing term consequences. Most times the action and inactions of management may have dire conseque nces on the company which may in the long overtake stigmatize a company as an underperforming one. Consequently, managers who pursue their own interests quite a than that of the company may underperform its duties. The following corporate governance mechanisms faecal matter play a major enjoyment in preventing managers from engaging in activities that lower firm value thereby incentivizing management to perform smoothly. This strain will briefly consider three of those mechanisms that gear management towards excellent performances. Board Composition This is a principal mechanism through which the shareholders throw out check managerial performance. If a management team is not performing well, the shareholders could direct the board of directors to fire the incumbent team and replace them with break up perfor... ...eves that it has changed the attitudes and practices of U.S managers, stating that it represents the most effective check on management autonomy forever devised . And it is breathing new life into the public corporations. Works Cited Scharfstein David, the Disciplinary role of Takeovers 1988 55 the review of economic studies 185 accessed 27 November 2009 p 185. Julian Franks, Collin Mayer, inappropriate takeovers and the correction of managerial failure 1996 40 Journal of Financial political economy 163 accessed 27 November 2009 p163. Ibid