Question

Discuss the various ways in which corporations are governed. b) What are principal-agent conflicts and principal-principal conflicts and why are they important to governance?

Answer 1

a) Corporate governance is a process or technique in which corporate is managed or directed. It means managing the business according to the stakeholder's desire. There are basically two ways in which the corporation are governed:

1. Government corporation - Government corporation is a labeled as wholly-owned but independence of private business in which they are owned, acquired or sponsored by the government. Government corporation have the unisex and legal status that differentiate them from state agencies and the private-owned entity or commercial enterprises.In the government corporation the stake of the government in the company is high. So, the government have the power to make an important decision about the company/ corporation.
2. Private corporation - A Private corporation is a corporation in which multiple investors are working with the common goal to make the profit from the corporation. Private corporation is a company that is working under the private ownership and follows the government.In the Private corporation the stock and share can't be issued, exchange or offered in public.

b) Principal-agent conflict - Principal-agent is a conflict or problem is created when the conflict between the principal and agent arises.The Principal-agent typically occurs when the agent acts slowly in his own interest.In the relationship between the Principal-agent, the principal is the party that appoints the agents on the behalf of them to take decision and action. Generally, Principal-agent conflict arises, when the agent(one person) is allowed to take the decision on behalf of the principal(another person) in favor of some incentive, shares or money.In this situation conflict is arise, when the agent is work for there profit rather than the principal's profit.

Principal-principal conflict - Principal-principal conflict arises when the one principle is work for there profit rather than all corporation profit.It is a conflict between the minority shareholders, shareholders and the controlling shareholder. Which shows that these conflict leads to major governance problem in all over the world. Generally, the conflict is arise between the principal in key areas like - managerial talent, executive compensation, mergers and acquisition etc.

The conflict between the agent-principal-principal is very important for the governance.because with the help these conflicts they can resolve there internal-external governance mechanism and this conflict protect the minority shareholders interest in the company. Because the conflict is not arise the shareholders have to follow the rules and regulations. so, the interest of the shareholder is safe.