This is a qualitative question requiring you to address the three questions outl

Question

This is a qualitative question requiring you to address the three questions outlined below. You should answer as a single essay but be sure your essay [answer] addresses the concerns of each part.

The role of corporate governance is of utmost importance and has received increased attention over the past decade.

a.) Who actually owns a corporation? In your answer, be sure to explain how the owners play a role in the firm’s management.

b.) What is the agency relationship between the key constituents in a corporate structure? In other words, how are the various players involved in a corporation?

c.) Lastly, what are the possible problems that can arise due to the organization between management, owners, and others involved in the business conduct of a corporation and how are these problems mitigated?

Explanation / Answer

A corporation or a company is being owned by the set of stockholders. The stockholders appointed the Directors on the Board of Directors for the management of the company. The Board of Directors on their part appoints the Management for the operation of the business of the company and its control.

The Board of Directors and the Management so appointed are the agents of the Stockholders of the company. The Stockholders of the company appoints the Board to act in their favour and appreciate their wealth ie. the Market Stock price and earn dividends for them.

In this whole relationship, the problems arises when the interests of the parties. The conflict of interest gets mitigated when both parties tries to defend their point. The conflict in the business conduct of a corporation comes up when:

(1) The owners ie. the Stockholders wants the Directors and the Management so appointed by the Directors to earn the best returns of their investments in the company. On the other hand, the management has to work out the equilibrium between the revenues and the amount of expenditure to management the operations.

(2) The owners wants the management to provide them the whole informations of the operations whereas the Management wants to conceal the hard secrets of the operations.

(3) The owners wants the dividend on higher rate on regular basis whereas the Management wants earnings to be plough back in the operations for the new projects.

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