Summary

The corporate form of business allows businesses that need capital to get it and expand, thereby helping the economy. It also allows people with money to provide those funds to a business and profit from having ownership in that business. The disadvantage of public corporations is the separation of ownership and control. Managers who control a firm can take advantage of investors who own the firm. To inhibit poor managerial behavior, shareholders try to align the executives' interests with their own through incentive programs involving stock and stock options. In addition, the corporate system has several different groups that monitor managers. Unfortunately, both alignment incentives and monitors have failed recently. The system has interrelated incentives that combine to create an environment in which people might act unethically. We believe that the best solutions are ones that fully recognize the integrated nature of corporate America and alter the present incentives. In the following chapters, this book documents the extent of the failure. Later, we examine solutions to the problem.