A characteristic of the public stock corporation is the separation of ownership and control. (BERLE and MEANS, 1932) While shareholders bear a large part of the wealth effects of the company's investment policy and business development, concrete decisions are largely in the hands of management. This can lead to problems because managers and shareholders have different preferences with regard to corporate goals, risk and time horizon. The different preferences would not be a problem if the behavior of the management could be observed in detail by the shareholders, which is not the case.
Given the non-identical preferences of equity providers and employed managers and the fact that there is a difference in information between the two groups, the question arises as to which “mechanisms” are suitable for controlling the management. This topic is dealt with under the heading of manager control.
Es handelt sich um eine typische Problematik der Agency theory. Hier wurden drei grundsätzliche Verfahren zur Milderung der Nachteile genannt.
First: Hiring managers with a selfless ethical attitude who make the goal of the shareholders their own, despite the knowledge that they have a discretionary scope of action that they could largely unrecognized exploit for selfish goals. The latter would mean, for example, overinvestment, the empire building and measures that are not very profitable and only promote comfort and the personal social respect shown to the managers.
Second: Suitable measures to influence the managers' motivation, for example through their participation.
Third, more surveillance. This means that reports are required more often or that external directors work more in the company. Laws and best practices could also lead to more intensive reporting here.
FAMA has also pointed out the role of the labor market, which promotes managerial discipline. The executive labor market has many direct constraints on performance. Managers are committed to the success of their company in order to increase their own value in the job market. The competition between managers in the labor market leads to managers from different companies observing and thus controlling one another. In addition, bosses in the same company monitor and assess their junior staff on the one hand and subordinates on the other hand their superiors. All these assessments of competent managers among one another somehow get into the job market as information, so that individual performance and career opportunities are strongly correlated with one another.