Corporate Conflicts Influence on Management Efficiency and Company Value: Review of Theory and Empirical Evidence

Abstract

Corporate conflicts impact on the personnel management efficiency at any level: at the level of the board of directors and at the level of top management, at the level of middle management and at the level of linear management, etc. It could be explained by the existence of agency problems in the relationships of shareholders and managers, and between managers and their subordinates. With the increase of the personnel management efficiency shareholders’ wealth grows: to reach this purpose the interests of employees should coincide with the interests of shareholders, and that is the basis of a great number of economic models. Moreover, corporate control market (like other external instruments of corporate governance) is a way to encourage managers to work more efficiently. The likelihood of corporate conflicts makes us to look for opportunities to harmonize the various positions beforehand, and in this context, corporate conflict is a way of corporate governance development and improvement. On the other hand, corporate conflict decision requires resources, which could be allocated in improving the management system of the company for further business development and shareholders welfare increase. The relationship of corporate conflicts and the quality of the internal management system of the company is extremely relevant for Russia. In the present paper we consider a number of models from different branches of economic theory, which describe the relationship between the actions of managers, the possibility of monitoring their performance and shareholders’ wealth. Models, evaluating the effectiveness of employees, can draw conclusions about how important it is sometimes for managers to get rid of the business owners control and how important it is for shareholders, by contrast, to make the monitoring and evaluation of management performance more effective. Managers’ compensations based on the value of securities reduce the incentive for their opportunistic behavior. And the degree of shareholders’ belief to information supplied by the market and management, is the main stimulus for the deferred payments to managers.