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Firmly hooked

Aug 11th 2009
From Economist.com

Is it good if bosses feel strongly for the firm?


GETTING bosses to act in the best interests of a company’s shareholders has long been one of capitalism’s trickiest problems, identified early on by Adam Smith. In “The Wealth of Nations” he worried that “Being the managers of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private co-partnery frequently watch over their own.” In the 1920s, Adolph Berle and Gardiner Means followed up on the problems of separating ownership from control in their classic study, “The Modern Corporation and Private Property”. From the 1970s, this dilemma acquired its own branch of economics—agency theory, which studied the problems that can arise when “principals” (ie, shareholders) hire “agents” (executives) to run their firm.

Read the full story at the following link:

http://www.economist.com/daily/columns/businessview/displaystory.cfm?story_id=14207412&fsrc=nwl