Evaluate the View That the Separation of Ownership from Control in Large Firms Inevitably Causes Diseconomies of Scale

4 (b) Evaluate the argument that managers controlling large companies might follow policies which do not necessarily maximise the profits of the owners.

There are three internal and one external governance mechanisms used for owners to govern managers to ensure they comply with their responsibility to satisfy stakeholders and shareholder’s needs. First, ownership concentration is stated as the number of large-block shareholders and the total percentage of the shares they own (Hitt, Ireland, Hoskisson, 2017, p. 317). Second, the board of directors which are elected by the shareholders. Their primary duty is to act in the owner’s best interest and to monitor and control the businesses top-level managers (Hitt, Ireland, Hoskisson, 2017, p. 319). Third, is the

Managers and shareholders are the utmost contributors of these conflicts, hence affecting the entire structural organization of a company, its managerial system and eventually to the company's societal responsibility. A corporation is well organized with stipulated division of responsibilities among the arms of the organizational structure, shareholders, directors, managers and corporate officers. However, conflicts between managers in most firms and shareholders have brought about agency problems. Shares and their trade have seen many companies rise to big investments. Shareholders keep the companies running

Structure is the basis through which an organization seeks to create control the direction of an organization. This is completed through clear definitions of the allocation of work, differentiation, and the coordination of having those responsibilities working together towards the efforts of the organization, integration (Bolman & Deal, 1993, pp). Through these methods, the organization is able to devise a division of labor that collaborates to bring about the missions and goals of an organization. The structure that comes about from this can be varied in their rigidness and flexibility it allows, and to an extent this is a great contribution to its success.

To the extent of prevention of corporate failure, I argue that three ASX principles and recommendations could halt the demise of Dick Smith. Firstly, the 2nd principle which is “Structure the board to add value” by structuring the board with a majority of independent directors would prevent CEO dominance because some suggest that independent outside directors can reduce the influence of dominant individuals (ASX, 2014, p. 17). In accordance with Gallagher and Bennie (2015, p. 20), the independent directors are likely to focus on the company’s objectives and not to make decision relying on others. Furthermore, an addressing of independent directors would reduce the reliance on management, and create the effectiveness on monitoring (Dechow et al. 1996 cited in Christensen, Kent, and Stewart (2010)), as well as capability to lessen the conflict of interest between managers and shareholders (Hardjo & Alireza, 2012, p. 4). Thus, DSE’s board would be more active to monitor the CEO’s performances because independent directors pay attentions to the interest of company (Gallagher & Bennie, 2015, p. 20) and shareholders (Hardjo & Alireza, 2012, p. 4)

According to Boddy (2008), management refers to the process of bringing together individuals with the sole intention of achieving desired objectives, aims and goal using available resources effectively. Composed of several vital tenets, this paper seeks to

By assigning responsibilities to managers underneath Dalman and Lei, the self-managed team would be better prepared to address day to day operations without consuming Dalman and Lei’s time. This would mean training a self-managed team to develop better planning and regulate what types of training would help them accomplish their daily duties. After the self-managed teams are properly trained, they would be assigned tasks that would reduce the need for Dalman’s involvement in visiting operating locations and addressing manager concerns, and Lei would be able to fully concentrate on the company’s financial matters without being

As your management consultant, I would like to mention that we live in days when many young entrepreneurs have dreams of starting their own businesses. But, unfortunately, some of them believe that managing a business is simple. Your case shows what can happen when a new owner does not pay adequate attention to important components of management and:

In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders elect the directors of the corporation, who in turn appoint the firm’s management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders. If such events

Caterpillar (CAT) has become “the industry leader in earth-moving machinery” for several reasons. However, a sole reason for the company’s success is the patent for their “farm treads” (Kotler, Keller 395). If CAT failed to trademark these treads, they would have never received the advantages resulting from their contract with the Army in the mid-20th century. This relationship helped CAT build their brand equity, all while gaining market share. Besides the trademark, the company’s restructuring in the 1990’s helped CAT to manage its sales, profits, and losses. According to Chron, decentralizing improves a company’s decision making process because managers have greater authority and control (Joseph). Furthermore, the managers will begin to evaluate each decision thoroughly since the outcome reflects directly back on them. Moreover, decentralization is a primary reason why CAT was able to bounce back from the 1980’s recession. Decentralization constructs separate business units which encourages each organization to assume responsibility for their actions (Joseph). The individualized organizations allow managers to adapt their strategies to the varying market environments. In other words, managers have the authority to react appropriately to different environmental situations, as well as, allows them to respond in a timely fashion. Furthermore, CAT investing in research and development has contributed greatly to the company’s success. The development of “new technologies,

The twentieth century has brought in a number of management theories which have helped shaped our view of management in the present business environment. These emerging theories have enabled managers to appreciate new patterns of thinking, new ways of organising and new ways of managing organisations and people. Over the years these different theories have enabled the study

Therefore, managers’ motives significantly determine the result of the takeover as they may act to maximize their utility and empire building instead of the value of shareholders (Zalewski, 2001:140). Some managers face employment risk and, therefore, may also undertake mergers and acquisitions to reduce this risk rather than reward the shareholders (Weston, Siu, & Johnson, 2001:204). In addition, managers’ salaries, bonuses, social status and promotions have a direct relationship with the size of the firm. This divergence between motives and interests of managers give rise to the agency problem. Therefore, managers will accept a return on investment that is below that is required by the shareholders (Jensen & Merckling,

“Management is the planning, organizing, leading, and controlling of mankind and other resources to achieve organizational goals efficiently and effectively (University, p 4 2011)”. The greatest achievement of an organization is to provide goods and services that customer’s value. The managerial department of an organization has the power to determine the performance of the employee’s, which directly affects the quality of the service or product that is being supplied to the customer. “Managerial tasks are essential for effective management, which involves planning, organizing, leading, and controlling (University, p 6 2011)”. Planning is the process of identifying the suitable goals of an organization and how they will be implemented in the company. Organizing is the procedure that determines the departments of an organization. When departments have been established the next step is to decide who will work best at a particular job. The development of organization inside a business will form the organizational structure for the company. “Leading is the ability to inspire and organize individuals to work as a team to complete the goals of the business in an efficient and effective manner (University, p 9 2011)”. Controlling is being able to assess the procedures of a company and eliminate or change any strategy plans that are not showing high- performance levels. Controlling may consist of monitoring

Economic science teaches us that due to their subjective needs, individuals have subjective preferences, and hence different interest. Occasionally different subjective interests give rise to conflicts of interest between contracting partners. These conflicts of interest may result in turn, in one or both parties undertaking actions that may be against the interest of the other contracting partner. The primary reason for the divergence of objectives between managers and shareholders has been attributed to separation of ownership (shareholders) and control (management) in corporations. As a consequence, agency problems

Management is one of the most important human activities and has critical impact on life, growth, development or destruction of an organisation. In an organisation, managers with any rank or status should understand their basic duties i.e. maintaining a sustainable conductive environment where people can fulfil their commitments and objectives through collaborative approach. (Akhtar, 2011) A manager is responsible to achieve the business’s goals, visions and objectives by planning, organising, leading and controlling. Dubrin (1994) stated that in every organisation each member of staff must plan, organise, make decisions, and control the resources they need to accomplish the results expected