Agency Theory or Principal Agent Theory is the relationship that involved the contractual link between the shareholders (the principals) that provide capital to the company and the management (agent) who runs the company. The principals will engage the agent to carry out some services on their behalf and would normally delegate some decision-making authority to the agents. However, as the number of shareholders and the complexity of operations grew, the agent, who had the expertise and essential knowledge to operate the business and company tend to increasingly gained effective control and put them in a position where they were prone to pursue their own interests instead of shareholder’s interest.
Agency theory addresses three types of problems that could exist from the separation of ownership and management which might consequently affect firm value later. They are the effort problem, the assets’ use problem and different risk preferences problem.
The first problem is the effort problem which concerns whether or not managers apply proper effort in managing corporations so as to ...
Most recent theories on motivation conclude that people will start certain behaviors under the belief that this behavior will accomplish desired goals or outcomes. With Lewin (1936) and Tolman (1932) leading the charge, the goal-oriented behavior led researchers to want to understand more on the psychological value people attribute to goals, people’s expectations on reaching these goals, and the structures which keep people striving to achieve these goals. After some recent findings on goal-oriented behavior, researchers were able to differentiate different types of goals, whereas before researchers assumed that goals that were valued the same, with the same expectations of achievement, would need the same amount
Ineffective management is a global issue that causes billions of dollars in loss to businesses each year. A report from the Chartered Management Institute indicates that in th...
What is the relationship between management and mission, resources, the system process, and structure? Which of these internal factors are ends, and which are means?
Robbins, S.P., & Coulter, M. (2009). Management (10th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.
Robbins, S. P., & Coulter. M. (2014). Management (12th ed.). Retrieved from: Colorado Technical University eBook Collection database.
Wren. (2005). The History of Management Thought (5th ed.). Danvers, MA: Wiley & Sons. (Original work published 1976)
Tom Peters is described as a “management guru” from his “Double Shot Interview with Tom Peters; Management Guru” on YouTube. Here he discusses says he was one of the first people who “associated excellence with business”. He goes on to further say that in a professional soccer/football team there are 53 professional players, his point being “that any organised group of human beings is attempting in some kind of fashion to be of service”, therefore, just like in a business you don’t measure excellence by just basing it on profit or losses, “in sport you don’t measure at all entirely by the score of the game, you measure significantly by the quality of the game”.
Jensen, M.C and Meckling, W.H (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, October, 1976, V. 3, No. 4, pp. 305-360. Available on: http://www.sfu.ca/~wainwrig/Econ400/jensen-meckling.pdf. [Accessed on 20th April 2014].
5. Business is business and every firm has to find ways to produce and market its goods. Why, then, might managers be unable to successfully apply the techniques and concepts they have learned in
An agency relationship is formed between two parties when one party (the agent) agrees to represent another party (the principal). Normally, all employees who deal with third parties are considered agents. Principal-Agent relationships are defined as the understanding that the agent will act for and on behalf of the principal. (Cheeseman) The agent assumes an obligation of loyalty to the principal that he will follow the principal’s instructions and will neither intentionally nor negligently act improperly in the performance of the act. An agent cannot take personal advantage of the business opportunities the agency position uncovers. A principal-agent relationship is fiduciary, meaning these obligations bring forth a fiduciary relationship of trust and confidence. As such, an agency relationship is governed by employment law.
There are several theories that examine an organization and it’s approach to managing work in an effort to develop efficiency and increase production. Two classical approaches to management are Taylor’s scientific management theory and Weber's bureaucratic management theory. Both men are considered pioneers of in the study of management.
2. Kinicki, Angelo, Williams, Brian Management, a practical introduction, Second Edition. New York, New York, McGraw-Hill 2006/2003
Over the past hundred years management has continuously been evolving. There have been a wide range of approaches in how to deal with management or better yet how to improve management functions in our ever changing environment. From as early as 1100 B.C managers have been struggling with the same issues and problems that manager’s face today. Modern managers use many of the practices, principles, and techniques developed from earlier concepts and experiences.
Robbins, Stephen P., David A. DeCenzo, and Mary K. Coulter. Fundamentals of Management: Essential Concepts and Applications. 7th ed. Upper Saddle River, NJ:
In the 21st century they consist of various barriers that prevent managers and leaders from achieving their goals and improving their organizations work. Managers constantly try tackle this issues that drive towards lowering productivity. Challenges of management include :