This chapter assesses the legal response to shirking and managerial incompetence, the other problems that have been assumed to be exacerbated by the separation of ownership and control, by way of the duty to exercise diligence, care, and skill. The chapter concentrates on the influence of weak owner control on management efficiency. It also surveys the law of negligence as it applies to directors, and addresses whether the role of the courts as external monitors of management efficiency could usefully be increased. The claim that the separation of ownership and control does not lead to serious inefficiency is discussed. The view of some market theorists that the operation of market forces renders liability rules in this area superfluous is explained as well.
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