Ever since the famous Berle and Means (1932) appraisal on the performance of large corporations, the term ‘corporate governance’ is used to describe questions of how to govern a firm or a company and is nowadays on everyone’s lips and labels every organization. One of the most influential academic papers on corporate governance is the Jensen and Meckling (1976) approach. In this paper, the authors draw on the Berle and Means (1932) finding that corporations which are governed by managers instead of large shareholders, are underperforming. Jensen and Meckling (1976) put this finding in the context of the emerging literature on perfect contracts. Corporate governance is since then described as a contractual problem at the top of a firm to solve market imperfections. Oliver Hart (1995, p. 678) mentioned that: ‘Corporate governance issues arise in organizations whenever two conditions are present. First, there is an agency problem, or conflict of interest, involving members of the organization – these might be owners, managers, workers or consumers. Second, transaction costs are such that this agency problem cannot be dealt with through a contract.’
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