Hypothesis Identification Article Analysis
In today's zero-defect business environments, companies must select effective, informed decision makers for key decisions. Michael C. Jensen and William H. Meckling (1992) challenge this corporate maxim. They argue that the best decision maker is the person with the best incentives to make successful decisions, even if companies realigning their decision making processes spend more in communication costs and time. In the right answer lies one of the keys to effective business management.
Especially in larger organizations with separate boards of directors, or in any organization with outside investors, management and shareholders are separate. As illustrated by the corporate scandals in the past five years or the failed merger of AOL and Time Warner, this separation can create conflicts between senior managers and shareholders. Both groups can have different objectives for their organization. Jo Evans and Charlie Wier (1995) study this problem using agency theory analyses.
Agency theory postulates that any "agency" possesses two key stakeholders: principals/shareholders and managers (Evans and Wier, 1995). Evans and Wier use corporate directors and divisional managers, identifying the directors' lack of direct control over day-to-day operations as the primary reason for the potentially divergent interests of directors and managers. For example, managers may execute plans with short-term payoffs to demonstrate immediate results or win a key account. Shareholders and directors will often take a longer-term view of an organization's success. Evans and Wier (1995) conclude that shareholders would generally prefer to prevent managers from making decisions that did not align with shareholder objectives.
The study investigates four corporate structures, using these as the hypothetical basis of the study. Evans and Wier establish four hypotheses to analyze the management question raised in their research. The objective of the study is to show that organizations "employing appropriate monitoring and incentive schemes will...