Agency Conflict

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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. In companies, the primary agency relationships are between: 1. Conflicts between stockholders and creditors 2. Conflicts between Inside Owner/Managers and outside owners 3. Conflicts between managers and shareholders Conflicts between stockholders and creditors Conflict between shareholders and creditors is common for the company which use debt capital to form an optimum capital structure. As mentioned earlier, agency relation exist when one party works as an agent of the principal. In an organization management…show more content…
The dividends that stockholders receive and the value of their stock shares depend on the business’s profit performance. Managers’ jobs depend on living up to the business’s profit goals. The conflicts between stockholders and the managers of a business include the following: * The more money that managers make in wages and benefits, the less stockholders see in bottom-line net income. Stockholders obviously want the best managers for the job, but they don’t want to pay any more than they have to. In many corporations, top-level managers, for all practical purposes, set their own salaries and compensation packages. A public business corporation establishes a compensation committee consisting of outside directors that sets the salaries, incentive bonuses, and other forms of compensation of the top-level executives of the organization. An outside director is one who has no management position in the business and who, therefore, should be more objective and should not be beholden to the chief executive of the business. This is good in theory, but it doesn’t work out that well in practice — mainly because the top-level executive of a large public business typically has the dominant voice in selecting the persons to serve on its board of directors. Being a director of a large public corporation is a prestigious position, to say nothing of the annual fees that are
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