Essay about Ethical Challenges and Agency Issues

1725 Words Aug 11th, 2013 7 Pages
Ethical Challenges and Agency Issues
Analyzing ethical challenges Most people are aware of the ethical challenges businesses face in today’s world especially, in the financial services industry. Financial services became a major target after several scandals such as Enron and MCI. Unfortunately, the financial industry is very large, which encompasses entities such as banks, insurance companies, mortgage lenders, pension, and securities funds. “The financial service sector represents 20 percent of this index’s market capitalization. Because of the vast size, the industry tends to garner lots of headlines, many of which tout its ethical lapses” (Federwisch). Based on the case study, “Level of Executive Pay” the Chairperson of NYSE is
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To remedy the above situations, the principal and agent must have open communication, and take action to remedy the issues. One way for the principal to ensure this is done is to monitor the agent. However, too much monitoring may be too costly and also affect the decisions made by the agent. The agent may believe he or she cannot make any decisions the client does not feel is in their best interest. Although the decision may be best for the client, he or she may not see it at that point. Another agency issue involves the stockholder-manager relationship. Because managers tend to be the primary decision makers of an organization, they may choose to make decisions in their best interest rather than in the best interest of the stockholders. With this, the principle of self-interested behavior comes in (Emery, et. al., 2007). Stockholders want to maximize their stockholder wealth while the goals of managers tend to be salary, power, status, and growth of the organization (Emery, et. al., 2007). This agency issue was apparent in the case study, “Level of Executive Pay.” In this case study, there was an investigation by the SEC into the New York Stock Exchange (NYSE) because of its excessive payments to the NYSE Chairman Richard Grasso (Eldenburg, 2005). The NYSE is a private organization with
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