Business Ethics and Corporate Governance, Second Edition

INSIDER SYSTEM

In concentrated ownership structures, ownership and/or control is concentrated in the hands of a small number of individuals, families, managers, directors, holding companies, banks and/or other non-financial corporations. Most countries, especially those governed by civil law, have concentrated ownership structures. Insiders exercise control over companies in several ways: own the majority of the company shares and voting rights; own some shares, but enjoy the majority of the voting rights.

Companies that are controlled by insiders enjoy certain advantages. Insiders have the power and the incentives to monitor management closely thereby minimizing the potential for mismanagement and fraud. Moreover, because of their significant ...