Question

The "Agency Problem" is one of the major concerns in the corporate form of business organization. What is the agency problem and how would you address it?

Answer 1

Agency problem is nothing but the contrary interests where one of the parties is indeed expected to take decisions which are better off for the others or be beneficial to others. For example, in finance the agency problem arises when the manager has to take a decision which maximises the wealth of shareholders though the objective is to increase the wealth of organisation. It isn't possible practically to rule out agency problem, however it can be minimised by giving incentives to the person in charge or manager to take the decision best according to the principal's interest. Principal-agent relationship can also be regulated to minimise this problem and one best example of this case is fiduciary rule where it regulates the relationship between ahenaand a financial advisor.