View/Open - Research Commons - The University of Waikato

particularly lack of effective management skills on the part of shareholders and the
influence management has over information may inhibit shareholders from enforcing
remedies provided by the law. 31 Further, dispersal of ownership weakens
shareholders voting power which causes problems for them in co-ordinating the use
of voting rights. 32
Dispersal of ownership can also lead to the possibility of directors engaging in
opportunistic behaviour at the expense of the corporation and shareholders. 33 To
avoid this, shareholders will need to monitor the directors and this is known as the
agency costs. 34 The existence of the duty to act in the interests of shareholders and
other fiduciary duties will compel directors to be accountable for their actions and
reduce the agency costs. 35
Fama, however, reasoned that dispersed ownership and control can lead to corporate
efficiency. 36 Instead of being disciplined by shareholders, he explained that
competition with other companies in the market will self regulate the management
teams‟ performance. 37
31 The Steering Report above n27 at [5.1.5].
32 Ibid.
33 Cheffins above n8 at 106-107.
34 Eugene F. Fama “Agency Problems and Theory of the Firm” (1980) 88 J. Polit. Economy 288 at
290-292; ; Ian M Ramsay “Holding Company Liability for the Debts of an Insolvent Company: A
Law and Economic Perspective” (1994) 17 UNSWLJ 520 at 535-537; [Corporate Objective];
Michael Jensen and William Meckling “Theory of the firm: Managerial behaviour, agency costs
and ownership structure” (1976) 3 J Finan.Econ 305 at 308-310.
35 Ibid; Farrar „Frankenstein” above n29 at 154.
36 Fama above n 34 at 308-310.
37 Ibid.
125