Principals-Agents Conflict of Interest - 1798 Words

Cynthia Claude Nkono Moanang 1009040 CORPORATE GOVERNANCE AND BUSINESS ETHICS ASSIGNMENT TOPIC: Principals (shareholders) – agent (managers) problem represents the conflict of interest between management and owners. For example, if shareholders cannot effectively monitor the managers’ behaviour, then managers may be tempted to use the firm’s assets for their own ends, all at the expenses of shareholders. Discuss the pros and cons of this statement with regard to duties of Board of Directors. Most organisations these days are no more owned by their managers. This separation of ownership and management gives rise to what is called agency relationship. Jensen and Meckling (1976) define the agency relationship as†¦show more content†¦They must continuously review the performance of the chief executive to ensure that managerial actions are in line with shareholders wishes and given that they are accountable to the former, they have to report to them about the overall organisational performance. Regarding their duty of loyalty, directors must pre vent conflict of interest by avoiding transactions which may generate a potential conflict; those transactions according to Professor Bernard S. Black of Standford Law School in an article entitled The principal Fiduciary Duties of Boards of Directors are called â€Å" self-dealing â€Å" transactions. Representing at the same time the boss to one extend and the subordinate to another extend, directors must make sure never to act in ways that will harm either the shareholders or the executives, treat both parties with care and respect and try to make good decisions i.e. that will compromise none of the parties, but which will be profitable to the firm. Also, board members have the duty to keep private all dealings, matters and information from the board meeting and the company in order to avoid the disclosure or misuse of information which may lead to a conflict. From the study of board members duties, we can state that companies’ corporate governance rests mostly on their shoulders. So, when effective, it permits the realisation of corporate objectives, risk management, the reduction of agency problems and an increase in the value of theShow MoreRelatedFunctions Of The Principal Multi Agent Relationship Matters Essay1008 Words   |  5 PagesEven if agents mobilize around CVE, implementation still may not occur. After the mobilization stage, agents need to determine what the actual programs will encompass and what service providers will implement these programs. I argue that implementation may fail to occur due to coordination problems that arise within the planning stage based on the way decisions are made. For implementation purposes, the structure of the principal-multi-agent relationship matters. The implementation of CVE involvesRead MoreAgency Problem Essay 91404 Words   |  6 Pages Economic science teaches us that due to their subjective needs, individuals have subjective preferences, and hence different interest. 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