ACCA Strategic Professional · Strategic Business Leader · Governance scope and approaches
Corvale Ltd's majority shareholder, who also chairs the board, has arranged for the company to buy services from another business he owns at above-market prices. Minority shareholders have little power to object. Which statement best reflects the agency issue here?
The issue is a conflict between controlling and minority shareholders. The dominant owner uses his control to divert value to his own business through above-market related-party transactions, harming minority principals. Ownership by the chairman does not remove the agency problem; it changes its form.
- AThe conflict is between controlling and minority shareholders, where the dominant principal expropriates value from other principalsCorrect
- BThe conflict is the classic one between owners and non-owner managers, so remuneration design is the main solution
- CThere is no agency issue because the chairman is also an owner
- DThe problem arises only because the company has too many non-executive directors
Explanation
Where ownership is concentrated, the agency problem can shift from managers versus owners to controlling versus minority shareholders. The dominant owner extracts private benefits through related-party dealings. Being an owner does not remove the conflict with other owners.
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