Control Conflict, Costs and Activism

The article examines different forms of ownership and control to identify costs associated with alternate control structures. It extends the Agency Cost theory and Principal cost theory to determine the conflicts created by each control mechanism. Control structures may be categories into Managerial, Working and Majority Control resulting in either principal costs, agency costs or conflict costs. Based on the relationship between and among the shareholders and directors conflicts can take the form of principal – agent cost, agent – agent cost or principal – principal cost. Firms with managerial control face principal-agent and agent-agent conflict, those with working control encounter conflict among block shareholders and small shareholders and firms with majority control are besieged with majority-minority conflict. Shareholders can address these conflicts of interest through activism. The success of activism is dependent on the degree of activism which may be a nudge, a shove or a punch