Please join StudyMode to read the full document. Agency relationship occur when the principal hire the agent to perform a service on the principal behalf. In common, principal will delegate decision making authority to the agent. Agency Theory is concerned with resolving problems that may exist in agency relationship; that is, between principals such as shareholders and agent of the principals such as company executive. The two common problems that agency theory addresses are: 1 the problem that arise when the goals of the principal and the agent are in conflict. Because of different risk tolerances, both principal and agent may each be refused to take different action.
Agency Theory Essay 3
Agency and Shareholder Primacy - Term Paper
Institutional ownership also plays a part in monitoring, and controlling agency costs within the corporate form of organization. An agency problem that exits in the corporate form of business is the conflict of interest between the company's management, and the company's stockholders. Introduction Corporate governance is a system where companies are directed and controlled with boards of directors accountable for the governance of the company while the shareholders are responsible to appoint the directors and the auditors and to satisfy themselves that an appropriate structure is in place. From this definition, we can see that corporate governance is concerned with the fundamental issue of separation between the management by the directors and the ownership by the shareholders of a company. Therefore, the role of the board of directors and the position of the shareholders are important. Discussion on Stakeholder Theory In its most classic formulation, companies are formed for the maximisation of shareholders interest shareholder theory. The shareholder theory was originally proposed by Milton Friedman and it is based on the premise that managements are hired as the agent of the shareholders to run the company for their benefit, and thus they are legally and morally obligated to serve their interests.
Agency and Shareholder Primacy
If one were too look at attraction, retention and development of employees across the categories of extrinsic vs. The lure of some type of external compensation is always appealing to bring people in, however, it is not enough to make them stay, or commit to reaching for more in an organization. Due to this, successful managers understand that if they are to motivate employees, they have to do so through intrinsic methods.
The desert view is that the CEO gets what he deserves as evaluated by his performance Moriarty If any of these views are valid, then he claims it follows that CEOs are paid too much Moriarty Although Moriarty does make some valid points, I do not agree with all that he states. Specifically, I have critiques with his second view, the desert view.