Employing Incomplete Contracts and Agency to Promote Balance of Power between Directors and Shareholders: A Corporate Governance Challenge

The paper analyzes the balance of power between the board of directors and shareholders by investigating corporate practices as it relates to the twin issue of agency and incomplete contracts.

First, it discusses the role of directors and the role of shareholders in the company. It highlights the respective position of directors and shareholders within the corporate structure of the firm.

Second, the paper discusses factors responsible for power imbalance between the directors and the shareholders. Specifically, it considers the issue of agency, contract effectiveness, and the statutory power to initiate legal proceedings for promoting balance of power. Reducing the agency challenge and ensuring the negotiation and implementation of effective contracts is an effective way to play an important role in ensuring balance of power between directors and shareholders. The discussion in this section, briefly highlights other factors that are capable of impacting the balance of power between directors and shareholders.

Third, it concludes by highlighting the importance of balancing power between directors and shareholders and suggests steps that could be taken to promote balance of power.