WHAT FACTORS PREVENT INDEPENDENT DIRECTORS FROM PROTECTING INTERESTS OF SHAREHOLDERS IN CASES OF CONFLICT OF INTEREST?

Özet

One way to mitigate agency conflicts between shareholders and managers in publicly traded companies with dispersed ownership is supplementation of independent outside directors to the board, who can monitor the top executives and prevent them from malfeasances. However, in conflict of interest situations, independent board members are not always enabled to oppose senior managers, particularly CEOs, who put their personal interests above those of shareholders. In such cases, the efforts of independent directors to monitor managers will be unsuccessful, which, in turn, may result in the latter receiving unjustified personal benefits at the expense of shareholders. Active participation of independent directors in resolving situations where interests of these groups do not align ensures the mitigation of tension and the proper functioning of the company. Thus, the establishment of cases where independent outsiders cannot fulfill their basic duties of shielding shareholders appears to be rather a significant issue.