Explain agency conflict and how agency costs can be reduced.© BrainMass Inc. brainmass.com October 25, 2018, 2:12 am ad1c9bdddf
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1. Explain agency conflict and how agency costs can be reduced.
According to finance theory, the goal of economic organizations is to advance shareholders' wealth. The agency conflict or problem is that the corporations have become diffused, with few organizations being owned by their managers. This separation of ownership and management has created issues (problems and/or conflict) of the relationship between owners and managers. This set up a situation where managers can substitute self-interest for shareholder interests because of the difference of information between the manager and shareholders, and the manager often acts as the voice of the shareholder, as they are given more leverage in this way "to act as cross-purposes with advancements of shareholder needs". ...
Explains agency conflict and how agency costs can be reduced.
Agency Conflicts and Corporate Governance
The following quotation appeared in the Fortune magazine "I have never asked to serve on a corporate board, never even hinted at wanting to be on one. And I have never asked to be on a compensation committee. I suspect that the reason I've been put on so many is that word gets around that I believe in paying people very, very well... I cannot sit and say to you what the right compensation number is. That's the judgment call, the business judgment call. That's what a board of directors does... What I know most of all is that when I see extraordinary effort and results out of a CEO, you can't pay him enough."
Evaluate the comments made by this particular director.View Full Posting Details