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Hypothesis Identification Article Analysis In todays zero-defect business environments companies must select effective informed decision makers for key decisions Michael C Jensen and William H Meckling 1992 challenge this corporate maxim They argue that the best decision maker is the person with the best incentives to make successful decisions even if companies realigning their decision making processes spend more in communication costs and time In the right answer lies one of the keys to effective business management Especially in larger organizations with separate boards of directors or in any organization with outside investors management and shareholders are separate As illustrated by the corporate scandals in the past five years or the failed merger of AOL and Time Warner this separation can create conflicts between senior managers and shareholders Both groups can have different objectives for their organization Jo Evans and Charlie Wier 1995 study this problem using agency theory analyses Agency theory postulates that any agency possesses two key stakeholders principalsshareholders and managers Evans and Wier 1995 Evans and Wier use corporate directors and divisional managers identifying the directors lack of direct control over day-to-day operations as the primary reason for the potentially divergent interests of directors and managers For example managers may execute plans with short-term payoffs to demonstrate immediate results or win a key account Shareholders and directors will often take a longer-term view of an organizations success Evans and Wier 1995 conclude that shareholders would generally prefer to prevent managers from making decisions that did not align with shareholder objectives The study investigates four corporate structures using these as the hypothetical basis of the study Evans and Wier establish four hypotheses to analyze the management question raised in their research The objective of the study is to show that organizations employing appropriate monitoring and incentive schemes will on average have a higher level of profitability than firms that do not Evans and Wier 1995 Evans and Wier 1995 use a four hypothesis
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