Parent control of agency problems
The parent corporation of an MNC may be
able to prevent agency problems with proper
governance.
“governance" means: the process of decision-making and the process by which decisions are implemented (or not implemented).
Clearly communicate the goals for each subsidiary to ensure that all subsidiaries focus on maximizing the value of the MNC rather than their respective subsidiary values.
The parent can check whether the subsidiary managers are satisfying the MNC’s goals.
The parent can implement compensation plans the reward the subsidiary managers who satisfy the MNC’s goals.
Provide managers with the MNC’s stock.
Provide options to buy the stock at a fixed price)
Managers would benefit from a higher stock price when they make decisions that enhance the MNC’s value.