Legal Deterrent Strategy Against Illegal Management Actions

Abstract

The author considers legal strategy of restriction from illegal actions of the management, allowing to protect interests of shareholders. The author analyzes the agency problem between shareholders and management in the corporate legislation through a prism of legal strategy. The shareholder of the company possesses powers which allow it with a view of efficiency achievement as independently, and under the responsibility to appoint to (choose) the management. The management is allocated with large powers. Legal strategy of restraint assumes co-ordination of actions of management and the shareholder, allowing to lower the agency costs connected with wrongful acts (infringements of the fiduciary duties) from management. In the corporate legislation main principle is the priority of interests of the company in whole (the corporate blessing) over interests of other participants of corporate relations. The key role is played by the control of the shareholder of actions of management within the limits of legal strategy of restraint. The effective and flexible system of compensation allows to lower level of the agency conflict between management and the shareholder of the company. The motivation program should be focused on important long-term objectives of the company. Compensation directly is connected with results of activity of the company and professionalism of its management. A part of legal strategy of restraint is use of fiduciary rates which protect interests of the shareholder as a class. The legislation demands, that the management acted in good fair and reasonably in interests of the company. The author focuses the companies on provision of independence as a part of controls for the purpose of decrease in the agency conflict between management and participants of the company. The legal strategy of restraint offered by the author, allows to soften the agency conflict between interests of a management and interests of participants of the company.