Essay assignment Example | Topics and Well Written Essays - 1000 words

Assignment - Essay Example In order to overcome these disputes certain information is remained confidential to the shareholders. This paper briefs about the agency problems and discusses effects of conflicts on the shareholders. It further provides information about the shareholder management to minimize these conflicts. An â€Å"agency problem† may occur when the principle (shareholders) hires an agent (management) to perform business activities. This is because of the reason that the conflicts between the interests among between the management and shareholder (Clark and Marois). The main objective of the company’s management and stakeholders is to maximize its profits. Disputes among the managers and shareholders are created on the bases of their interests. Shareholders may object the amount of incentives that is being paid to managers (Clark and Marois). If the information regarding the incentives and pays to the management is disclosed to its shareholders, it may decrease the net profit margi n of the company. In certain cases it is ethical for the management to hide the internal information from its shareholders, mostly decision making, investment decisions (Clark and Marois). This is because of the reason that the shareholders are not aware of the internal issues of the management; this may involve the moral hazards, employment issues, suppliers matter etc. In case of agency problem certain information regarding the incentives may remain confidential with the shareholders in order to eliminate the possibilities of disputes. It is essential for the organization to maintain the interest its management and shareholders to pursue its objectives (Clark and Marois). Therefore, the management and shareholder shall work together to maximize its profits. The conflicts among the relationship between the management and shareholders may create obstacles to attain the objective and goals of the organization. Management is aware of the internal issues of the company, such as supplie rs’ choices, employment regulation, incentives, investment decisions etc. whereas the entire shareholders are not aware of these internal concerns of the management (Clark and Marois). If any of them is in conflict it may create an obstacle for the organization to pursue its objectives. Secondly, the conflicts may arise the problems in the attitudes of the management and shareholders to have different attitude towards their work (El-Shamy). Management plays the major significant role to attain objective of the organization therefore, conflict among them may result in different attitude in the work (El-Shamy). It is essential for the organization to work with the mutual consent of management and shareholder therefore the management shall carefully identify the issues and resolve in order to keep both of them satisfied. Shareholder’s hire management to pursue its goals, In order to render their services (management) the principle has to bear certain costs also known as a gency cost. Agency cost is paid by the shareholders pay to hire manager in order to act on its behalf (Clark and Marois). This is because of the reason that both have different interest, as the management has more information. These costs are inevitable within an organization, the cost may be spend to provide material incentives (increments, bonuses and stock options) and moral incentives for the management to execute their duties in interests of shareholders. Based on the