Question

The separation of management and control in a public corporation is aimed at:
A) increasing strategic thinking in the firm
B) lowering agency costs
C) to preserve a hierarchical structure for smoother communication
D) decreasing the volatility of the firm’s net income
E) none of the above

Answer 1

We can define the separation of Management and control with reference to the owner managed firm. In such a firm, the owner/manager possesses two principal attributes. The owner/manager (1) makes management decisions of the firm and (2) has a claim to the profits of the firm.

Under some conditions, hierarchical decision making may be more efficient than market transactions. Both hierarchical structures and market structures impose transaction costs. For some types of transactions, market costs may be particularly high. If so, then hierarchical decision making may be more efficient

Separation of ownership and management in corporate governance involves placing the management of the firm under the responsibility of professionals who are not its owners. Owners of a company may include shareholders, directors, government entities, other corporations and the initial founders. This separation allows skilled managers to conduct the complicated business of running a large company.

Separation of ownership and management in cooperate governance involves placing the management of the firm under the responsibility of professionals who are not its owners. Owners of a company may include shareholders, directors, government entities, other corporations and the initial founders. In corporate governance these owners are sometimes different from those running the company to allow skilled managers to conduct the complicated business of running a large company.