Into the early 1900s, most managers seemed content to work toward maximizing shareholder wealth in return for large salaries. However, by the 1920s, this accord had changed drastically. Insider trading, stock price manipulation and diversion of corporate funds for personal use was rampant. The goal of the organization had shifted to maximizing the interests of management. Recognizing these abuses and a need for change, Congress enacted the Securities Act of 1933, which, among other restrictions, outlawed insider trading and other attempts to manipulate the market. This act and the establishment of the SEC in 1934 helped to reduce the agency conflict between owners and managers. During the 1960s and 1970s, senior management compensation was more typically tied to the size of the firm: the bigger the firm, the bigger the salary. This ushered in a new goal for the corporation, at least from management’s perspective, to seek rapid expansion of the firm with little concern for risk, profitability, cost, or stock price. During this time, managers spent lavishly on themselves even when their companies were in financial trouble. The 1980s saw another shift with the beginning of the shareholder value
Into the early 1900s, most managers seemed content to work toward maximizing shareholder wealth in return for large salaries. However, by the 1920s, this accord had changed drastically. Insider trading, stock price manipulation and diversion of corporate funds for personal use was rampant. The goal of the organization had shifted to maximizing the interests of management. Recognizing these abuses and a need for change, Congress enacted the Securities Act of 1933, which, among other restrictions, outlawed insider trading and other attempts to manipulate the market. This act and the establishment of the SEC in 1934 helped to reduce the agency conflict between owners and managers. During the 1960s and 1970s, senior management compensation was more typically tied to the size of the firm: the bigger the firm, the bigger the salary. This ushered in a new goal for the corporation, at least from management’s perspective, to seek rapid expansion of the firm with little concern for risk, profitability, cost, or stock price. During this time, managers spent lavishly on themselves even when their companies were in financial trouble. The 1980s saw another shift with the beginning of the shareholder value