Post by
carbide on Jan 15, 2022 12:12pm
Principal-principal problem
The combination of concentrated ownership and concentrated voting power often results in controlling shareholders maintaining a position of power over both managers and minority shareholders; these controlling shareholders are referred to as strong shareholders, and such managers are referred to as weak managers. In this scenario, controlling shareholders can effectively monitor management because they are able to control the board of directors and, in turn, the appointment of managers. With concentrated ownership and concentrated voting power, however, controlling owners may also be able to allocate company resources to their own benefit at the expense of minority owners. This conflict is known as a principal–principal problem.