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Management: Agency Problem - Essay Example

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An Agency Problem within a Firm and the Causes of the Problem
Agency Problem is a term used to refer to the conflict of interest which exists between the management of a company and the stockholders of the company. …
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Management: Agency Problem
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Download file to see previous pages However, if the managers fail to do this and instead satisfy their appetites of making themselves their own wealth, then we have an agency problem.
The ‘agency problem’ has been in existence as long as capitalism has been. Ferguson (2004) gives a very good account of the how long the problem has been in existence. In the eighteenth century, East India Company one of the world’s first corporations, did business in India while its major shareholders lived far away in London. In as much as the shareholders tried to exercise their control of the business, they could not because of the limitations associated with communication systems. Messages were carried by ships to and from the destination. More often than not, it would take half a year to get messages from Calcutta to London and the same period of time to get replies from London to Calcutta. The expatriate agents; the managers the shareholders put in place to run the business for them out rightly ran their own businesses not taking into consideration the interests of the shareholders and of the company as an entity. ...
Description of the Company Boeing is by far one of the most successful plane manufacturers in the world. However, it has had its fair share of problems. In organizations where the matrix management structure it utilized, it is important that communication be prioritized as the key that leads to success. At Boeing, communication lines flow, often more freely with the matrix structure hence allowing for an increase in accountability from both the project teams as well as the project managers. The matrix structure the company uses ensures that each and every one of the companies departments has a vice-president. The departments are as follows: Communications department Business development and strategy Operations, engineering, and technology Internal governance Finance International Public policy Law department Human Resources and administration The company uses specialization. This means that there are different individuals who are in different units and who perform very specific tasks in their areas of work. There is an executive council; there is the commercial airplanes department, a capital corporation department, shared services group, integrated defense systems department, and lastly the Engineering, Operations, and Technology department. The company also relies on Corporate Governance; the executive staff as well as the board of directors oversees the firm and its operations. The board of directors and the executive staff use integration in running the organization. The Agency Problem and Boeing Boeing’s agency problem is one of the examples of the form the problem has taken in modern day capital market. Boeing had ...Download file to see next pagesRead More
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