Advantages And Disadvantages Of Agency Problem

Agency law is a relationship between a principal and in agent in which the agent is legally authorized to act on the behalf of the principal.

Agency Problem: “The difficulties that arise when a principal hires an agent and cannot fully monitor the agent’s actions.” (Cornett, Adair, & Nofsinger, 2016, p. 15).

The scope of this paper is to analyze the kind of agency problems that emerges between The Hershey Company and their stakeholders and shareholders. To answer this, a review of the company`s board structure and ownership structure was made. Thereafter two specific situations that has occurred in recent times was used as case examples to enlighten the agency problems suggested to emerge by the corporate structure.

Managers and shareholders are the utmost contributors of these conflicts, hence affecting the entire structural organization of a company, its managerial system and eventually to the company's societal responsibility. A corporation is well organized with stipulated division of responsibilities among the arms of the organizational structure, shareholders, directors, managers and corporate officers. However, conflicts between managers in most firms and shareholders have brought about agency problems. Shares and their trade have seen many companies rise to big investments. Shareholders keep the companies running

“The agency relationship is defined as ‘the fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his contract, and consent by the other so to act.’ Agents obligations relating to their players are defind not only by contact, but by the fiduciary characteristics of the relationship.” The agent owes his/her player a lot of things in their basic care to their player. These things include the fiduciary duty of undivided loyalty and the duty to act in good faith at all times. The player is going to entrust this agent with all of their fortune, reputation, and legal rights and responsibilities. Along with all of these duties the agent is going to have to abide by what the player wants and carry out what their desire are. This is a responsibility of the agent and it must only do what is desired by and for the player and must not carry out its own business affairs. “The agent must obey all of his/her players’ lawful instruction no matter how arbitrary or capricious any of those instructions seem to the agent or anyone else. However, if the player instructs the agent to perform something illegal, like bribe someone, the agent does not have to comply.”

2. A principal-agent relationships involves the owners (principals) delegating decision-making authority to managers (agents). A conflict occurs when the agents pursue acceptable levels of shareholder wealth and profit rather than a maximization of profit. They are pursuing their own self-interests. One way that the agents act in their own self-interests would be by focusing on long-term job security. This could cause the agents to limit the amount of risk taken by the firm. The firm may have an opportunity that is considered a riskier venture that could produce high profits if successful. If the venture proves to be unsuccessful, then the agent is at risk of dismissal. Therefore,

This paper talks about Children’s Crisis treatment Center (CCTC). CCTC as a system is concern with meeting the needs of children and families with mental health and those that have experienced abuse, neglect and trauma. The focus here will be on the School Therapeutic Services component, the connection it has to the system and the environment and attempt to bring to light whether CCTC is functioning in line with its mission statement. I will also be describing my place in the institution as a system.

If an agency relationship is in existence, the principal is responsible for the agent’s actions.

Agency Conflicts: An agency relationship arises whenever someone, called a principal, hires someone else called an agent, to perform some service, and the principal delegated decisions making authority to the agent.

Agency issues arise when one party (principal) gives another party (agent) an authority to act on his behalf. In this context, the principal is the investor while the professional hedge fund

Organizational Economics deals with a fundamental and universal problem of organizations: How to induce managers and other employees to act in the best interests of those who control ownership or, in the case of government agencies and nonprofit organizations, those who have the authority to control policy and resource decisions. Also rooted in the second half of the 20th century Organization Economics Theory is concerned with agency theory, behavioral theory, incomplete contract theory, transaction cost economics, and game theory (Shafritz, Jang, & Ott, 2011). Unlike typical neoclassic economic models that see organizations as systems for managing productions costs and schedules, key questions organizational economists address include the contractual nature of firms, bounded rationality, the significance of investment in specific assets, the distinction between specific rights and residual rights and the effects of imperfect information. (Shafritz, Jang, & Ott, 2011). Additional interests lie in the concepts and tools from the field of economics to the study of the internal process and structures of the firms.

Agency relationship refers to a consensual relationship between two parties, where one person or entity authorizes the other to act on his, her or its behalf, and they exist as mutual agreements between individuals, small firms and large organizations. Managerial opportunism is when managers use employer information for personal gain, this creates a conflict of interest, with self-serving managers making decisions that benefit them rather than the company owners or shareholders. Corporate governance problem deals with

Agency problem is a potential conflict between the agent and shareholders in the interest. It is shown that ownership is separated from management. This cause not only is the divergence of ownership and control, but also the information is asymmetrical. When ownership is separated

Economic science teaches us that due to their subjective needs, individuals have subjective preferences, and hence different interest. Occasionally different subjective interests give rise to conflicts of interest between contracting partners. These conflicts of interest may result in turn, in one or both parties undertaking actions that may be against the interest of the other contracting partner. The primary reason for the divergence of objectives between managers and shareholders has been attributed to separation of ownership (shareholders) and control (management) in corporations. As a consequence, agency problems

As explained by Schelker (2013), the agency problem between the owners and the management of a firm is at the heart of the corporate governance literature. Hence, there is a need for a