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- 4 Marks
Question
Agency problems are inherent in static corporate structures. This conflict arises when separate parties in a business relationship, such as a corporation’s managers and shareholders, have disparate interests. Corporations employ several dynamic techniques to circumvent static issues resulting from agency problems.
Required:
Identify FOUR measures which shareholders may seek to resolve any agency problems that arise. (4 marks)
Answer
- Increased Shareholder Voting Power: Shareholders can seek to strengthen their voting power, especially on key issues like executive compensation and board appointments, to ensure that their interests are represented and that management is held accountable.
- Appointment of Independent Directors: Shareholders may push for the appointment of independent directors to the board, who can provide unbiased oversight and prevent management from pursuing self-interested actions that do not align with shareholder value.
- Regular Performance Reviews: Implementing regular performance reviews for executives, tied to clear, measurable goals, can help ensure that management is working in the best interest of shareholders. This can include setting up committees to evaluate executive performance against agreed objectives.
- Transparency and Disclosure: Shareholders can demand greater transparency and disclosure of management actions, decisions, and company performance. This can include regular, detailed financial reporting and open communication about company strategy and risk management practices.
- Topic: Corporate governance framework
- Series: MAY 2017
- Uploader: Theophilus