Question

Explain how the separation of ownership and control in American corporations might lead to poor management.

Short answer

The separation of ownership and control creates the principal-agent problem, which is the root cause of poor management in Country A's corporation. Managers are the business's agents, and equity holders are its owners. The managers make the decisions.

Step-by-step solution

Content Introduction

The principal-agent problem arises when an agent is required to make decisions on behalf of another that have an impact on the principal. It causes a problem in business management.

Content Explanation

The separation of ownership and control creates the principal-agent problem, which is the root cause of poor management in Country A's corporation. Managers are the business's agents, and equity holders are its owners. The managers make the decisions. As a result, managers will prioritize their own interests over those of the majority. As a result, the management may not be able to grow and survive for long.