The Clash Between Management And Ownership

1311 Words Dec 13th, 2015 6 Pages
For sole proprietorship, the firm has a single owner who runs the firm, the goal and vision is clear because the goal of the firm is what the owner desires. In contrast, problems tend to arise when it comes to organizational form of business. A large public organization has hundreds of thousands of shareholders in the firm who owes the business. And each of them will have different preference to wealth, risk tolerance, investment decisions, strategy and so on. They cannot possibly manage or have control over the business directly, therefore a separation of ownership and control is needed. A managing team will run the corporation and this will easily lead to conflicts between the interest of the management and the shareholders. In this essay we will look at how the conflicts arise and how to mitigate these problems with different policies.

The clash between management and ownership is called an agency problem. An agency problem can be defined as “when managers, despite being hired as the agents of shareholders, put their own self-interest ahead of the interests of shareholders.” (Berk, DeMarzo 2014 p.11) As to understand what causes this problem we have to date back to the act of manages and shareholders.

Financial managers deeply involves in financial policy and planning as well as keeping close contact with the CEO and other top management. They are also highly involves in managing short-term cash and other financial transactions. But the most important job of all is…
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