¶ … agency theory in the light of management conflict with shareholders and issues pertaining to compensation packages for executives. It has 10 sources.
Management role as agency and their relationship with shareholders often result in conflict of interest where executive compensation is concerned. While on the one hand management is keen on developing the company through its qualified CEOs, shareholders are more interested in their returns. As a result there exist problems of differential of interests where investment cash flows, financial management and reporting are concerned. These mechanisms are considered to be the lifeblood of an organization yet have often been subjected to agency issues.
Discussion
According to Osborne and Rubinstein, [1994] the game theory incorporates the spirit of trust between two decision makers. In a situation of agency problem propagation, the two entities involved in decision making mechanism are the stockholders and the managers. The level of agreement of sharing the decision making capabilities by each entity is differential from situation to situation. This level of abstraction ensures coverage of a range of dimensions of decision-making, based on a mutual understanding.
While studying an agency problem such as management and stakeholder relationship / communication gap, there is an urgency to view the game theory in the light of the agency theory. For example if this void in communication/relationship is encouraged can favor managers into pursuit of risk and return of their own priorities, as per the spirit of the agency theory [Lecture Notes, 2003c]. The author suggests that management needs to be monitored in order to minimize the personalization of responsibilities, in favor of individual interest instead of the corporate or shareholder interests. The difference in communication and relationships is attributed to the difference of goals of the managers and stakeholders [Lecture Notes, 2003d].
As identification of a problem logically leads to the solution of it, the (agency) theory hosts a resolution for this...
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