Question

Good day,

please answer it.

Explain how agency conflicts arise in an organization. What are the appropriate solutions to reduce agency costs? Cite appropriate examples from Saudi Firms.

Answer 1

An agency cost is a type of internal company expense which comes from the actions of an agent acting on behalf of a principal.

Agency conflicts arise because of lack of understanding and communication between the principal and the agent. Sometimes the agent wants to do something for the benefit of all organization but the principal does allow the same. This demoralize the agent to give 100 percent to the organization.

Saudi firms tend to have only 1 or 2 main leaders in the organization and all the staff including their agents have to act on their command. thus it sometimes create confusion and discomfert for the agents to do their job perfectly and with whole heartidley.