Unethical Status (Ageincy Problem) Case Study Example | Topics and Well Written Essays - 750 words

Unethical location (Ageincy Problem) - Case Study ExampleUnethical Status (Ageincy Problem)Agency relationship occurs when shareholders (principals) hire another psyche or persons (agents) to undertake certain duties on behalf of them (principals). Agency theory portrays the firm as a connectedness of contracts between the holders of resources. This paper explores the type of conflict in the case, effect on stakeholders, type of tolls knotted and how to minimize the conflict. Shareholder-Management booking The case involves substance conflict between shareholders and the management. When managers hide some information from shareholders, an agency problem arises. A conflict ensues between shareholders and the managers of the institution. Managers will most often try to pursue self-concern gains at the expense of shareholders in an imperfect market. According to agency theory, agency problem arises when managers put their self-interest goals before those of shareholders.The a symmetric flow of information in an imperfect market makes it manageable for managers to pursue their self-interests sort of than that of the organisation (Bhabatosh, 2008). For example, managers are usually in a better opposition to know the ability of the organisation to meet shareholders expectations than the shareholders. Because of uncertainties in the market, managers can always influence the outcome of the performance of the organisation. They can manipulate the results to be positive or negative in pursuit of self-interests. The conflict between shareholders arises when managers seek for deals that reduce the winnings of the firm. For example, when managers seek for perquisites and pay rise, there may be a conflict between shareholders and the managers because this would most promising reduce the shareholder value. Another example is when managers try to avoid optimal risks contrary to the expectations of shareholders (Bhabatosh, 2008). Effect of the Conflict on Stakehol ders When managers avoid certain risky investment opportunities for which shareholders would most likely prefer to venture in because of high gains involved, there is likely to be a clash between the management and shareholders of the society. When outside investors discharge that the decision of the company is contradicting their own expectations and, thus not in their best interest, the result is discounting the prices that they can volitionally pay for the shares of the company. Agency Costs Unethical behaviour where managers take make unobserved actions courtesy of the unfitness of the shareholders to monitor all managerial actions leads to a morality crisis that demands shareholders to stimulate certain agency costs in order to keep managers on check (Kapil, 2011). Agency costs are those that are borne by shareholders in attempts to motivate managers to act in the best interest of the organisation rather than pursuing their individual interests. in that location are usuall y three main agency costs incurred by shareholders. First, shareholders are faced with the cost of monitoring the actions of the management (Kapil, 2011 Jensen & Meckling, 1976). Monitoring cost include audit cost to check on possible wrong behaviour of the management over a given financial period. Second, shareholders will have to incur structuring costs in a bid to establish organisational structure that will diminish the possibility of unethical behaviour among the management of the company (Kapil, 2011). These costs may include the appointment of independent persons outside the company to the board of directors or reducing organisational hierarchy. Lastly, shareholders also incur the agents