BUSINESS FINANCE

Question 1 (20 marks)

As companies grow in size, it is inevitable for the shareholders to hire management to run the operations of the business. The entire team of

management, starting from the CEO and other top-level management, all the way to the middle and bottom level management are expected to

perform towards the growth of the business. Since the shareholders of large companies are scattered across geographies, they appoint certain

members as representatives who are elected to represent them on the company board. The board of directors of a company, along with the

Chairman, are expected to keep the actions of the management in check.

Explain the above in context of agency theory and corporate governance. What can companies do to ensure adequate corporate governance?