ABSTRACT
Under investigation is the monitoring model of corporate governance with an emphasis on large corporations where decision-makers do not bear a major share of the wealth effects of their decisions. The principal-agent model is interpreted through the contractual view of the firm (Coase, 1937; Jensen and Meckling, 1976; Fama and Jensen, 1983a, b). A key issue in the agency view of corporate governance is how to align the interests of the agent with those of the principal. Other important issues include the timely minimization of any divergences, and how to balance the need for and the cost of monitoring with the benefits that arise from the separation of control and ownership. An effective system for decision control implies, by definition, that the control of decisions is to some extent separate from the management of decisions (Fama and Jensen, 1983b). That is, meaningful ratification and monitoring of decisions need to be separate from their initiation and implementation. The role of gatekeepers, their effectiveness, and their motivation in monitoring managerial behaviour is central to the discussion.
