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CFA Level I · CFA Level I Exam · Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits

A company with a dominant founding family that holds a majority of voting shares is most likely to face which governance conflict?

The most likely conflict is majority shareholders benefiting at the expense of minority shareholders. A dominant family controls votes and the board, so it can pursue private benefits, such as favorable related-party deals, that minority investors bear the cost of.

  1. ADirectors holding too few shares to align with managers
  2. BMajority shareholders benefiting at the expense of minority shareholdersCorrect
  3. CManagers taking too little risk because of dispersed ownership

Explanation

With concentrated control, the controlling shareholder can influence the board and pursue private benefits, such as related-party transactions, harming minority holders. This is a shareholder-shareholder conflict. The other options do not follow from concentrated voting control.

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