True, False, or Uncertain: For all of its negatives, bureaucracy is a strong corporate
governance mechanism that helps ensure that managers work to maximize
shareholder wealth. Explain.

Question

Quizplus · Accepted Answer

Bureaucracy promotes entrenchment. Managers become indispensable due to their knowledge of the internal process, and given this, their "value" to the firm--and consequently their compensation--will increase although they are not engaging in activities that will maximize firm value. Bureaucracy can also result in the undertaking of opaque projects, which are not shareholder-value enhancing.

True, False, or Uncertain: for All of Its Negatives, Bureaucracy