Internal mechanisms are the internal strategies employed by corporations which can inspire managers to maximize the value of shareholders ( Hauswald and Marquez, 2009 ). This paper evaluates three of such mechanisms including ownership concentration, boards of directors, and executive compensation, and recommends a fourth one – ethical monitoring team.
Ownership Concentration can be described as the grouping of large-block shareholders of a given corporation. These shareholders can be individuals or whole institutions such as mutual fund or pension fund owners. Given that this form of governance has become very demanding in many cases, it has moved from the individual to the large institutional type. The large institutional type permits tighter governance and managerial control as compared to the scattered individual type of shareholder. The boards of directors is made up of elected people that tasked with managing the interests of the owner and check the activities of top-level managers. Given that the directors do not work directly in management, they take part in decision-making without opportunistic concerns or peer pressure. Executive compensation seeks to group the interests of manager and owners through bonus programs, salary, and incentives such as stocks and other options.
Delegate your assignment to our experts and they will do the rest.
This paper recommends ethics monitoring team as the fourth internal governance mechanism to preserve the integrity of the board. With the presence of such a team, the board is able to present their suggestions and, at the same time, demand more accountability for the sake of the company’s success ( Hauswald and Marquez, 2009 ).
In the US, the emphasis of internal governance mechanisms is on the control of the decision-making process of managers to make sure shareholders’ interests are served. However, the interests of product market stakeholders such as suppliers and customers as well as organizational stakeholders such as managers and non-managerial workers are also vital. By introducing an ethical monitoring team, for instance, companies in the United States can ensure that the interests of at least some if not all of the stakeholders are met.
Reference
Hauswald, R., & Marquez, R. (2009). Governance Mechanisms and Corporate Transparency. JEL Classification G , 21 , L51.
