Business Ethics and Corporate Governance, Second Edition

DEVELOPING A CORPORATE GOVERNANCE FRAMEWORK

There are the following three different ways in which owners maintain control over the work of management:

1. the owners directly influence the corporate strategy and selection of the top management team;
2. the owners delegate their rights to the board, but ensure that compensation and other incentives are aligned with share price maximization; and
3. the owners rely on the market mechanisms of corporate control, such as takeover, when due to a decreasing share price new owners take over a company and change management in order to rehabilitate the company and increase its market value.

In other words, the corporate governance mechanisms can be both internal and external.³ There are two basic dilemmas connected ...