1. Who owns a corporation? Describe the process whereby the owners control the firm's management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?
The shareholders are the owners of the corporation. The shareholders elect the directors of the corporation, who in turn select top management. The relationship between stockholders and management is called an agency relationship. The main reason that such a relationship exists is whenever someone (the principal) hires another (the agent) to represent his or her interests such as management and shareholders. Management may act in its own or someone else's best interests, rather than those of the shareholders. If such events occur, the problem can arise, they may contradict the goal of maximizing the share price of the equity of the corporation.
2. Critics have charged that compensation to top managers in the United States is simply too high and should be cut back. For example, focusing on large corporations, Larry Ellison of Oracle has been one of the best-compensated CEOs in the United States, earning about $130 million in 2010 alone and over $1 billion during the 2006–2010 period. Are such amounts excessive? In answering, it might be helpful to recognize that superstar athletes such as Tiger Woods, top earners in the entertainment field such as James Cameron and Oprah Winfrey, and many others at the top of their respective fields earn at least as much, if not a great deal more.
In my personal opinion, I think they deserve these amounts. As a CEO, he must concern about the company's future and make the company profitable. Every decision he makes, every word he says will determine the trend of the company in the future. He must be endured a lot of pressures that we can't image. The superstar athletes are deserved these amounts too. For example, companies would like to invite the superstars to take commercials so as...