Agency problems are prevalent in the corporate world because managers and employees often have different motivations and different goals than their shareholders. Increased monitoring of employees has proven to be effective in reducing agency problems, but there will always be information or actions that employees are able to hide from owners. Bureaucracy is also a tool used to combat the agency problem. It does this by limiting what employees are allowed to do. However, employees may begin to resent this control when they feel that it is restricting them from doing what they feel is in their own best interests. Another way to deal with agency problems in the corporate world has to do with making the company either more centralized or more decentralized. A decentralized organization allows managers the latitude to use their own expertise to accomplish the task at hand. This can be beneficial in dealing with agency problems because managers are allowed to take more ownership over the work they do and make decisions that they may have more knowledge and expertise about than their shareholders do. However, the drawback to this type of organization is that it can lead to coordination problems. A centralized organization has more bureaucratic control over its employees to make sure that they are all doing what they are supposed to be doing and following orders, but this type of organization also limits the processing of information as well as inhibiting effective and timely communication.Much
of what has been previously discussed as corporate agency problems are also applicable to military agency problems as well. The military is a very centralized organization that passes goals and objectives down to its generals.