This is a principal-agent problem. http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem As

This is a principal-agent problem. http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem As for risk, remember that however all-powerful the executive's role is portrayed to be in popular culture, he is ultimately a servant of the shareholders and the employees. He acts according to pressure from the owners of the company to transform an existing business into a more profitable business. That is the principal (shareholders/board)'s intended role for the CEO. But as an agent of the principal, the CEO's incentive is different, it is actually to use his power and influence to manipulate the company into offering him maximum compensation and minimum risk in the short term, and to rig the company's business into taking risks that are degenerate in the long term but boost profits in the short term. And members of the board, who are also CEOs of other companies, are complicit in this because they are helping each other do the same thing--colluding to basically rob each others' companies together.