Solutions - shareholders and management conflict, Finance Basics

Solutions - Shareholders and Management Conflict

Conflicts between management and shareholders may be resolved as follows like:

1. Pegging or attaching managerial compensation to performance

This will comprises restructuring the remuneration format of the firm in order to improve the alignments or harmonization of the interest of the shareholders along with those of the management as like example of managers can be provided commissions, bonus etc. for superior presentation of the firm.

2. Threat of firing

This is whereas there is an option of firing the entire management team via the shareholders because of poor performance. Management of companies have been fired through the shareholders who such have the right to fire and hire the top executive officers as like example the entire management team of Unga Group, IBM, G.M. have been fired via shareholders.

 3. The Threat of Hostile Takeover

The shares of the firm are undervalued just because of poor mismanagement and performance.  Shareholders can threaten to advertise their shares to competitors.  So in this case the management team is fired and those who such stay on can lose their influence and control in the new firm.  This threat is adequate to offer incentive to management to ignore conflict of interest.

4. Direct Intervention via the Shareholders

Shareholders may intervene as follows like:

  • Insist on a further independent board of directors.
  • Via sponsoring a proposal to be chosen at the AGM
  • Creating recommendations to the management on how the firm would be run.

5. Managers would have voluntary code of practice, which should direct them in the presentation of their responsibilities

Posted Date: 1/29/2013 1:30:57 AM | Location : United States

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