ABSTRACT
This chapter investigates some of the conventional partial solutions to the principal-agent problem. Crucial to the minimization of agency problems is the independence of gatekeepers and monitors. The present discussion concentrates on the potential for independence of a) the board of directors, and b) external auditors. Reference is made to the cognitive and psychological factors introduced in the preceding chapters. Problems in ensuring the independence of monitors are highlighted. The independence of non-executive directors is discussed with an emphasis on problems of board capture and issues arising from social bonding and group decision-making. Auditor independence is discussed with particular reference to cognitive pressures which potentially lead to bias in interpretation by individual auditing partners, as well as to pressures within auditing firms to engage in sub-optimal monitoring of partner performance.
