Monitoring managers in the firm

1. Do Shareholders Monitor Managers? The analysis of section 4 applied to the standard case in which the effort of the agent was ‘unobservable’. Could it be, however, that some monitoring of managers by shareholders is feasible? Let us envisage that managerial services are purchased from specialist suppliers. The nature of the service is

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The managerial labour market and product market

1. THE MANAGERIAL LABOUR MARKET There are two different strands of thought in the literature on the manage­rial labour market, which are central to our discussion here. There is first the idea of the labour market as complementary to the internal incentive and monitoring systems of the firm. A second distinct theme is the

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The takeover and capital structure of the firm

1. THE ENTREPRENEUR AND THE TAKEOVER Inherently, a joint-stock firm is neither concentrated nor dispersed in the structure of its shareholdings. No document or constitution exists pro­claiming that a particular company’s shares will be dispersed widely. The degree of concentration or dispersion is capable of changing over time. It may appear at any given

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Hostile takeovers and economic efficiency

1. DEFENCES AGAINST HOSTILE TAKEOVERS 1.1. Supermajority Amendments If shareholders believe that the risk of takeover could have adverse conse­quences for the value of the firm, they could make adjustments to their corporate constitutions. Changes in the composition of the Board of Directors or mergers would have to be approved by more than a

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Capital structure and corporate governance of the firm

1. The Modigliani-Miller Theorem Throughout this chapter the agency problems of corporate control have been to the fore. Yet, although financial instruments such as ordinary shares and various types of debt have been mentioned and the conse­quences for incentives have been noted, we have not linked observed finan­cial structure systematically to control problems. The

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Corporate governance – bank versus market systems

1. The United Kingdom and the United States In his study of financial systems, Berglof (1990) argues that there are essen­tially two models of corporate governance – market oriented and bank ori­ented. Using this taxonomy, both the system in the UK and in the USA fall into the category of market oriented. A market-oriented

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Principal–Agent theory of the firm

1. RESIDUAL CLAIMS AND ENTERPRISE GOVERNANCE The joint-stock corporation is an immensely important institutional form, but it is not ubiquitous, and, as Chapters 8 and 9 have shown, it faces sig­nificant contractual problems. Given these problems, we might not expect the joint-stock enterprise to be better adapted than any alternative pos­sible assignment of property

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The contractual incompleteness and principal–agent problem in the firm

1. PROFIT SHARING AND CONTRACTUAL INCOMPLETENESS As has been emphasised on frequent occasions, information costs and bounded rationality mean that real world contracts are not fully specified. This contractual incompleteness leaves people vulnerable to opportunism and makes the assignment of residual control rights a matter of great importance. The governance structure of the worker-owned

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The labour–capital partnership and te role of peer pressure

1. THE LABOUR-CAPITAL PARTNERSHIP Sections 4 and 5 have been concerned with the difficulties faced by cooper­ative and profit-sharing enterprises when confronting investment and employment decisions. The labour-capital partnership is a form of organ­isation which has some attractive theoretical properties and is discussed in detail by Meade (1989). It is distinguished from the worker

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The retail cooperative, Marketing and supply cooperatives

1. THE RETAIL COOPERATIVE 1.1. Transactions Costs and the Retail Cooperative Where consumers are poorly informed about the quality and reliability of the goods offered by suppliers, the formation of a cooperative may be seen as a response to the adverse selection problem. By setting up a cooperative, consumers establish an institution that can

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Mutual enterprise and Stakeholding

1. MUTUAL ENTERPRISE Where people form a ‘club’ to provide various forms of financial protec­tion, we refer to ‘mutual enterprise’.29 Mutuals have played an important role in insurance and banking in the past and still feature significantly in many countries in spite of considerable ‘demutualisation’ in the 1990s, especially in the UK. The basic

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Non-profit and charitable enterprise

1. THE NON-PROFIT ENTERPRISE Institutions which cannot distribute residual profits and issue no exchange­able or non-exchangeable claims to profits are non-profit enterprises. Non­profit enterprises have a board of trustees who are responsible for appointing managers to run the day-to-day administration, and for ensur­ing that the activities of the enterprises are compatible with the purposes

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Examples of non-profit enterprise

The following four subsections offer a short discussion of non-profit enter­prise in particular areas from the perspective of the theory of contract failure. 1. Hospitals In the United States, two thirds of employment in the short term and general hospital sector is in non-profit enterprises. As we have seen, discussion of hospitals has formed

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Evolution and economic organization

1. THE VARIETY OF THEORETICAL APPROACHES Over the last ten to twenty years, institutional change has proceeded at a rapid pace in many countries. The wholesale collapse of the organisational structures of the planned economies of Eastern Europe is of obvious importance, but even in Western countries, which could loosely be described as ‘market-oriented’

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The Definition of Management

What do managers such as Heather  Coin and Paul McGuinness have in common? They get things done through  their organizations.  Managers create the sys- tems, conditions,  and environments that enable orga- nizations to survive and thrive beyond the tenure of any specific supervisor or manager.  Jack Welch was CEO of General Electric through 20

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Organizational Performance

The definition of management includes the attainment of organizational  goals in an effi- cient and effective manner. Management is important because organizations  are impor- tant. In an industrialized  society where complex technologies dominate, organizations bring together knowledge, people, and raw materials to perform tasks no individual could do alone. Without organizations, how could technology

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Management Skills

A manager’s job requires a range of skills. Although some management theorists propose a long list of skills, the necessary skills for managing a department or an organization can be placed in three categories: conceptual, human, and technical.14 As illustrated in Exhibit 1.4, the application of these skills changes dramatically when a person is

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Management Functions

Managers use conceptual, human, and technical skills to perform the four management functions of planning, organizing, leading, and controlling in all organizations—large and small, manufacturing and service, profit and nonprofit, traditional and Internet-based. But not all managers’ jobs are the same. Managers  are responsible for different departments, work at different levels in the hierarchy,

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Making the Leap: Becoming a New Manager

Many people who are promoted into a manager position have little idea what the job actu­ally entails and receive little training about how to handle their new role. It’s no wonder that, among managers, first-line supervisors tend to experience the most job burnout and attrition.23 Making the shift from individual contributor to manager is

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Managing in Small Businesses and Nonprofit Organizations

Small businesses are growing in importance. Hundreds of small businesses open every month, but the environment for small business today is highly complicated. The Appendix provides detailed information about managing in small businesses and entrepreneurial start-ups. One interesting finding is that managers in small businesses tend to emphasize roles different from those of managers

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