Strong Insiders Invite Weak Governance
”The directors of [joint stock] companies, however, being managers rather of other people’s money than of their own, it cannot be well expected that they should watch over it with the same anxious vigilance [as owners]...Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.” Adam Smith in 1776
"The combination of voluntary shareholder absenteeism and strong corporate insiders creates a problem that lies at the heart of today’s governance crisis. The important historical lesson is that the absentee shareholder system breeds arrogance on the part of corporate insiders. A vigorous corporate governance system is thus required to prevent shareholder rights being expropriated by insiders."
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Posted on 05/22/2009 by