May 29th, 2015
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As mentioned above, corporate governance mechanisms can help keep agency problems to a minimum. They are the processes and systems by which a country’s company laws and corporate governance codes are enforced (Adewale, 2013).

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Section 3- The cause of agency problems (corporate failures/corporate scandals)Agency problems arise when there is a lack of goal congruence between managers, directors and shareholders. According to Friedman (1979), the sole purpose of a business is to maximise the wealth of its shareholders. In an ideal world, directors and managers (agents) would obey by this and make decisions that would primarily benefit the shareholders (principals) of the company. However, agents are human and imperfect and will be incentivised to make decisions to increase their own wealth rather than that of the s

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