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okay lets do this today Im going to teach you something about corporate governance in general corporate governance is about problems that arise between a principal and an agent imagine youve just set up a company and you as a principal have hired a CEO as an agent to run your business the CEO may take actions that are beneficial for him but not for you the costs associated with such actions are called agency costs for example the CEO might pay himself an excessive salary and buy an oversized company car so how do you make sure he runs your company in your interest one option is through monitoring which means that you actively supervise what the CEO is doing in companies monitoring is a prime task of the Supervisory Board another option is through incentives instead of paying him a flat salary you might pay him a performance-related salary or even give him a steak of your company thereby aligning the CEOs interest with your interest this way the companys value has a direct impact on