Impacts of Private Benefits on Corporate Governance

• Published in: Financial markets, institutions and risks institutions and risks, 2024-10, Vol.8 (3), p.113-133
• Main Authors: Wadie Lahouirich, Mohamed, El Amri, Adil
• Format: Article
• Language: English
• Subjects: compensation; control; governance; ownership; private benefits; shareholding
• ISSN: 2521-1250; 2521-1242
• DOI: 10.61093/fmir.8(3).113-133.2024

This article addresses the critical issue of private benefits in corporate governance, focusing on how executives or controlling shareholders exploit their positions for personal gain, often at the expense of shareholder value and corporate performance. This issue is highly relevant, as it directly impacts the alignment between executive and shareholder interests and can lead to inefficiencies in corporate governance. The primary purpose is to examine the various forms of private benefits, such as excessive compensation and self-serving strategic decisions, and to explore governance mechanisms that can mitigate these practices. The choice of private benefits as the research object is justified by their widespread and detrimental impact on corporate performance and sustainability. This article employs conceptual analysis, grounded in agency theory, to investigate how performance-based compensation, independent audit committees, and increased transparency can reduce the extraction of private benefits. Drawing on key studies, it analyzes the ways in which these governance mechanisms align executive actions with long-term corporate goals. The main findings reveal that private benefits manifest in forms like excessive compensation and biased strategic decisions, undermining long-term performance. Strong governance frameworks, including performance-based pay and independent oversight, are essential in curbing such behaviors. The results of this article have practical applications for corporate boards, regulatory bodies, and governance consultants. They can be used to improve governance policies, ensuring that executive compensation and strategic decisions are in line with sustainable corporate practices, benefiting both shareholders and the broader business ecosystem.