How might a company configure its strategy-making process to reduce the probability that manager will pursue their own self-interest at the expense of stockholders?. Management

There are many corporate governance mechanisms that may facility the reduction of the scope and frequency of the agency problem, including the objective board of directors, stock­based compensation (stock options and stock grants), financial statements and auditors and the threat of corporate takeover. In addition to above mentioned governance mechanisms, the company can implant strategic control system as a part of their strategic-making process to try to reduce the agency problem. To implant this control system, the company should start with a clear definition of standards and target which will perform as a benchmark, then the company should create system for measuring and monitoring performance. Once achieved, the company can compere actual performance against the targets, evaluate the results and take corrective actions if necessity. One type of strategic control system is the balanced scorecard model that incorporates financial and performance measures in order to provide the comprehensive image of the present and future performance of the company. Moreover, when analysing internal environment as a part of strategy-making process, companies may look into the employee incentive systems and what are the most effective ways to motivate their employees.

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