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Explain the difference between a principal and an agent. How does this difference create the ‘principal-agent problem.
Transcript of Explain the difference between a principal and an agent. How does this difference create the ‘principal-agent problem.
What are the differences?
Conclusion Possible solutions References Begg, D And Ward, D. (2007). Growth Strategies. In: Begg, D And Ward, D Economics For Business . 2nd Ed. Berkshire: Mcgraw-Hill Education. P. 169.
Image - First Slide - Harvard Business Manager (2011) Prinicpal - Agent Theory. [Online] Available at: http://www.harvardbusinessmanager.de/heft/artikel/grossbild-590966-1358447.html (Date Accessed: 22nd November 2011)
Begg, D And Ward, D. (2007). Growth Strategies. In: Begg, D And Ward, D Economics For Business . 2nd Ed. Berkshire: Mcgraw-Hill Education.
Wit and Meyer (2004). Strategy – Process, Content, Context – An International Prospect. 3rd Edition. London: Thomson Learning
International Energy Agency (2007) MIND THE GAP – Quantifying Principal-Agent Problems in Energy Efficiency, France, 2007. Stedi Media. [Online]. Available at: http://www.iea.org/textbase/nppdf/free/2007/mind_the_gap.pdf (Date Accessed: 22nd November 2011)
Image - Fourth Slide - WordWorkersWorkshop(2011) Bridges. [Online] Available at: http://www.woodworkersworkshop.com/resources/index.php?cat=420 (Date Accessed: 22nd November 2011)
Principals Agents "A Principal is a person who hires an Agent to undertake work on their behalf." Begg And Ward (2007:169).
An Agent is hired to pursue the Principals interests.
Who is the Principal? Who is the Agent?
Cash exchanged for Shares
Financial interest only
Ownership of the company
Work (labour) exchanged for a salary
Little financial interest in the business
Personal perks. E.g. company car
Run the company day-to-day
Conflict of interests
Separation of ownership from control
More communication between Principals and Agents - change in relationship type.
Possible negatives with all solutions.
Gap needs to be bridged to bring Principal and Agent interests closer.
Solutions dependent on business type.