Principal-Agent relationships occur in many forms in business. Understanding these relationships is crucial for investors in order to make better investment decisions.
• Theory of Principal-Agent Relationships
As discussed in another article, the modern corporation can be conceptualized in a variety of ways. The set-of-contracts view illustrates that relationships between and among multiple stakeholders is complicated and provides many opportunities for one party to gain at the expense of another party. The Theory of Principal-Agent Relationships recognizes that there can be friction between relationships when one person acts for someone else.
• Principal-Agency Relationships Defined
Agency Theory refers to analyses associate with the Principal-Agent
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These benefits, however, are available because the corporate structure separates ownership from control. Stockholders, the owners of a corporation, do not directly control the interests of a firm. They hire managers to act on their behalf, the classic principal-agent relationship.
However, the relationship is actually a bit more complicated. The owners do not hire the employees of a company themselves. They actually hire top managers, human resources department, and others to hire people to act on behalf of the owners. This complexity can be illustrated further with the set-of-contracts theory of corporate structures. This theory states that organizational relationships are complex with many potentially conflicting legal and moral obligations to stakeholders. The ability to ensure that principal-relationships positively impact each stakeholder rests on the individual relationships that make up the entire system of agency created by the complexity of corporate
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In corporations, the set-of-contracts view of the firm illustrates the complexity of multiple agency relationships across many stakeholders. When an investor values a firm, the evaluation always takes into account the risk associated with the separation of ownership and control.
• Key terms
Principal-Agent Relationship: The arrangement that exists when one person or entity acts on behalf of another. For example, shareholders of a company elect management to act on their behalf, and investors choose fund managers to manage their assets. This arrangement works well when the agent is an expert at making the necessary decisions, but doesn't work well when the interests of the principal and agent differ substantially. In general, a contract is used to specify the terms of a principal-agent relationship.
Stakeholder: A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees, government (and its agencies), owners (shareholders), suppliers, unions, and the community from which the business draws its
The stakeholders that are part of this issue would include the employees who's records have been accesses, the employees that accessed the records, the IT administrator, as well as the company its self. Human resources, if the company has a human resources department, as well as upper management while not directly connected to the issue are also included as stakeholders since they will be included as part of the solution, and the people that employees that had their information accessed will hold accountable.
Political scientists and historians have always been on the opposite sides on the subject of how a decision is made. Political Scientists claim that by knowing a few details into the major players prior preferences that all future actions can be predicted by using that Rational Actors Model. However, historians refute this theory arguing that without knowing the context or the environment of the player, one can never truly understand the decision making process. By using the events which led to the internment of Japanese Americans I hope to show that any event can fit the model in hindsight but at the time of the actual decision there could have been many options for Japanese Americans short of internment.
Conflicts of Interest The financial principle “Conflicts of Interest” is a situation arising as a result of incompatibility of the desire of multiple parties; moreover it can be viewed from another angle of perspective as a position in which one derives individual benefits from the preceding acts agreed upon in the official capability. Agency problem being conflict of interest incorporated in any association whereby one partner is to act at the benefit or interest of another, which exists between stakeholder’s company and its management, even though it is to the mangers best of interest ,they intend on maximizing the wealth of the stakeholders by making proper decisions. One of the aims of many organizational conflicts are as a result of pressure between one’s motivation to act in on the basis of their own self gain and effort to authoritative rules of the institution to bring back the social esteem back such as morality and justice. The interaction between ethical motivation and self-interest is
A Stakeholder is any individual who has a vested interest in a business and is affected by the organisations decisions and strategies (Pride, Hughes & Kapoor 2015, p. 10). Therefore, the people most affected by Graeter’s decisions to take a long term view of the business rather than aim for short term profits are the family members who have a stake in the business. At the present, Richard Graeter II (CEO), Robert Graeter (vice president of operations) and Chip Graeter (vice president of retail operations) manage the business and are responsible for all the decisions regarding its operations. Graeter’s management team have chosen to forgo the opportunity for short term profits by adhering to the traditional manufacturing process used by Louis
Know Your Business Environment Unit No. 1: The Business Environment Pervez Ghazi Shaikh Date Submitted: 31/10/2016 Carl Loraine Cruz 20154176 Target is the organization that I have chosen for this assignment. Target is a famous discount retailer in United States that was founded by George Dayton. It was formerly called Dayton’s Company in 1910.
The Stakeholder Salience Theory, created by Mitchell, Agle and Wood, are based upon the combination of the three relationship attributes to generate general types of stakeholders. These attributes include: Power; Legitimacy; Urgency. “Stakeholder salience” is defined as the degree to which managers give priority to competing stakeholder claims. Therefore if a stakeholder consist of all three attributes, he/she/it will be of most importance and will have more rights and privileges than a stakeholder that consists of only one of the three attributes. As seen in the picture on the right, you can differentiate between the different types of stakeholders, according to where they get placed given the attributes they consist of.
Introduction This case study explores the acquisition of the Body Shop, which is one of the largest franchise cosmetics companies in the world, by L’Oreal. The main concentration of the case study aims at investigating the impact on business ethics and corporate social responsibility by the concentricity of the Body Shop and L’Oreal and how the general attitude and buying behaviour is distorted in the course of this acquisition. L‘Oreal being the big conglomerate in the cosmetics industry acquired the Body Shop International which is comparably small but having iconic brand of environmental and socially responsible concerns, on 17 March 2006, through a covenant of $1.2 billion. The combination of two brands in a newly formed conglomerate implies a combination of values, principles and associations that might affect a company’s appeal. The verity that L 'Oreal 's acquisition of the Body Shop provides plenty of potential growth opportunities is undeniable; nevertheless the question of how well the acquisition sits in the group of the world 's largest cosmetics company is another matter.
Disney and its employees are tasked with protective the Disney brand around the world and encouraging the shipping of continuing value. The main aims of Disney’s are satisfying the financial needs of the shareholders. However, Disney goes beyond satisfying for shareholder needs and locations a strong emphasis on moral conduct that affects each households and the environment. The moral standards at Disney do not just apply to the employees, but it also on the Board of Directors. Disney’s “Code of Business Conduct and Ethics for Directors” governs the actions of the Disney board, holds them to high moral standards and makes them accountable for actions taken on behalf of the company.
is known as Corporation. Apple Inc. is one of the leading organizations in technology all over the world, the company had to convert its form of business organization to the corporate form so as to enable them raise the capital needed for expansion and development of new products. A corporation is legal and separate from the owner; they operate on set bylaws and procedures which regulates their operations and decision making process. These bylaws guide the stakeholders in electing the board of directors who then pick the managers. The managers are expected to run the organization with the interests of the stakeholders at heart.
Stakeholder analysis Stakeholder are entity that will affect the organization actions, objectives and policies. There are two types of stakeholder which is internal stakeholder and external stakeholder. The McDonald’s stakeholders are customers, suppliers, employees, managers, government, local communities and pressure groups. Customers Customers are the external stakeholders of the company, no customer mean zero profit.
The relational exchange arrangement can be viewed as a method to fix the flaws of formal contract, which undermines trust and thereby encourage the opportunistic behavior. The core of the theory is relational norms which can help build up an effective contract governance, and eventually achieve a better vendor- customer relationship. “Many classifications of norms have been proposed, but no one is regarded as dominant. Heide and John (1992) have proposed that relational norms are a higher order construct consisting of three dimensions: flexibility, information exchange, and solidarity” (Solli-Saether & Gottschalk, 2010, p. 32).
When a business survives the external factors such as competition, they fail to realize the significance of relationships. In the case of the Valle family, they had success in their meat processing business without any doubts. Although, in the beginning, the other siblings had neglected the role of managing and ownership of the business because they weren’t feeling secured after the founder, Francisco Sr, had passed away. Therefore, Francisco did not gain the respect of the shareholders (his siblings) immediately after the death of the founder of Vega
The History of Business Ethics and Stakeholder Theory in America Ethics play a huge role in the global business field, since considerations have to be made on moral practices, values, and judgments that govern the direction and overall success of the company. Consequently, over the progression of history, managers, entrepreneurs, and stakeholders at the helm of organizations have always had the mandate of making moral resolves on matters of ethics. According to Hunter (2003), such an approach to ethical behavior prompts a substantial growth in the organizational corporation, as well as maximizing business profits, and creating a reputable company image (Cutler, 2004). Notably, the overall performances of organizations that take part in unethical
How would the platforms interact with the different stakeholders? Accordin to Freeman (1984), stakeholders are anyone that can influence or be influenced by the company’s actions. And there are two types of stakeholders, including the primary and seconday stakeholders ( Clarkson, 1995). For Starbucks, its major stakeholders include employees, customers, suppliers and stockholders. Starbucks’ performances and business strategies could also affect the general public and the society.
A system to check and balances the benefit of all the board of directors and to avoid some of top management from making decisions that only benefit themselves is created and named corporate governance. Corporate governance means the system of rules, practices and processes by which a company is directed and controlled. The set of rules provided as a guidelines for the board of directors to make sure that accountability and fairness in a company’s relationship with its stakeholders such as financiers, customers, management, employees, shareholders and also society in order to achieve company’s goals and targets in a manner that add a value to the company. All of the stakeholders play an important role in corporate governance to ensure that