The Economic Way of Thinking 13th Edition by David Prychitko, Peter Boettke, Paul Heyne

Exercise 19

Can those who own the stock of a large business corporation prevent the managers from pursuing their own interests rather than the interests of the shareholders? How can they effectively monitor the managers' behavior and persuade the corporation's board of directors to discharge executives whose goal is power, privileges, and "perks" for themselves rather than net revenue for the owners? Can't the managers generally use their positions and the corporation's resources to nominate and secure the election of directors who will be partial to management rather than guardians of the shareholders' interests? (The question that follows continues this line of inquiry, but in a different direction.)