fend against unwanted buyers, in others because they had been expired by example. A few big company executives, such as Jack Welsh of General Electric, overhauled their companies and then encouraged ongoing reforms without waiting for external shocks to drive them to change. Some boards of directors grew more active, taking action to replace executives before looming crisis turned into disasters. By 1993, the boards of General Motors, American Express, Kodak, and IBM had done exactly that. As more companies began to link managerial compensation to shareholder value creation, more managers were inspired to respond in kind, increasing corporate productivity, profits, and market values.Agency TheoryRecent developments in management and leveraged buyouts can be seen, to some extent, as interesting resolutions of aspects of the agency problem. Agency theory, which has become one of the most important topics in corporate finance focuses on the relationship between principals, as the owners of an asset, and the agents who operate the asset on the principals behalf. The possible conflicts of interests between a corporations parts (management, employees, shareholders, and bondholders) and how they overcome such conflicts is known as agency theory. The general agreement among agency theorists was that managerial and shareholder interests had become woefully disjointed. What the buyout offered was an opportunity to provide managers the security they needed while at the same time making them substantial equity holders, so that conflicting interests could be brought back into alignment. Among the scholars, Micheal Jensen became an early and consistently forceful advocate of the market for corporate control, and of the leveraged buyout in particular, as the salvation of shareholders from the excesses of managerial capitalism. When economic and legal histories of the 1980’s market for corporate control began to appear, other scholars ...
