HOW CAN BEING A PUBLIC COMPANY MAKE MANAGEMENT BEHAVE IN SHAREHOLDERS’ INTERESTS?

Transparency and Accountability: As a public company, there is a legal obligation to disclose financial and business information to shareholders on a regular basis. This includes annual reports, quarterly earnings, and any significant changes in operations. This level of transparency can encourage management to act in the best interest of shareholders, as any decisions that negatively impact the company's performance will be visible to shareholders.

Performance Metrics: Shareholders often evaluate a company's performance based on its stock price and dividends. Therefore, management has a vested interest in increasing the company's profitability and overall value, which in turn can increase the stock price and potential dividends. This aligns the interests of management with those of the shareholders.

Shareholder Voting Rights: Shareholders in a public company have the right to vote on key issues, including the election of board members. If shareholders are dissatisfied with the performance of the management team, they can vote to replace them. This potential for turnover can motivate management to act in the best interest of shareholders.

Regulatory Oversight: Public companies are subject to regulations and oversight by entities such as the Securities and Exchange Commission (SEC) in the United States. These regulations are designed to protect shareholders and ensure that companies are managed in a way that is fair and transparent. This oversight can deter management from acting against the interests of shareholders.

Market Pressure: The performance of a public company is constantly under scrutiny by analysts, investors, and the media. Poor decisions or performance can lead to a drop in share price, negative publicity, and loss of investor confidence. This market pressure can encourage management to make decisions that are in the best interest of shareholders.

Incentive Compensation: Many public companies tie management compensation to company performance. Stock options, bonuses tied to performance metrics, and other incentive-based compensation can align the interests of management with those of shareholders. If the company performs well, management benefits financially; if the company performs poorly, management's compensation may decrease.