We analyze the optimal ownership, delegation and compensation structures when a manager
is hired to run a firm and to gather information on investment projects. The initial owner has
two tasks: monitoring the manager and supervising project choice. Optimality would require a
large ownership stake for monitoring but a small stake for not interfering with managerial
incentives. Delegating project choice to the manager can alleviate this conflict if managerial
private benefits are not too small. The large shareholder retains full ownership of the firm but
monitoring, and the resulting firing policy, are distorted. Severance pay plays a key role in the
optimal compensation scheme. Delegation is interpreted as a dual-board structure.
