Question

1. Are you in favor of a shareholder maximization or stakeholder maximization corporate model? Explain why or why not and why a corporation would choose not to implement a stakeholder maximization corporate model?

2. Discuss ways in which you attempt to minimize principal-agent problems. Provide a real-life example of a strategy a company has implemented to better align the interests of shareholders and management.

Answer 1

1. I am in favour of stakeholders value maximization because stakeholder value maximization model refers to protection of the interest of the stakeholders of the organisation rather than focusing upon just mere shareholders, stakeholders value maximization will be looking for enhancement of the value of the cooperation in the long run rather than looking for the short term profit maximization.

Company should be trying to choose stakeholder maximization corporate model because it will be helpful for a maximization of the value of the company in the long run because they are physical and social aspect of business also and there is a societal element as well as responsibility of the organisation to operate as per the rules and regulation of the government so they will be trying to incorporate these regulations and act for the interest of the society and the stakeholders because ultimately society will be providing it with the required profit in the long run and it will be helping the company to survive and sustain in the long run.

2. I will be trying to minimise principal agent problem through following-

A. Providing stock options compensation to the managers

B. Better coordinating and operating system in the organisation

C. Performance related payment

Real life example will be Infosys which has implemented performance related payment in order to enhance the the principal agent relationship