The purpose of governance mechanisms in corporations is to

Question

Quizplus · Accepted Answer

The main purpose of governance mechanisms in corporations is to reduce the scope and frequency of the agency problem. This problem refers to the conflict of interest that arises when managers act in their own self-interest rather than in the best interests of the shareholders. Governance mechanisms, such as independent directors, executive compensation plans, and external audits, are designed to align the interests of managers and shareholders and reduce the likelihood of agency problems. Governance mechanisms are not primarily designed to keep employees in line or satisfy the SEC's requirements, although these may be secondary benefits of good governance practices. Limiting corporate growth to manageable rates is not a primary goal of governance mechanisms either.

The Purpose of Governance Mechanisms in Corporations Is to