Question

Give some examples of how the interests of different stakeholder groups may be in conflict. What is the agency problem? What steps can be taken to solve it? Discuss this topic in terms of how it relates to your own organization, or a company with which you are familiar.

Strategic Resource Allocation and Planning - is the name of this class

Answer 1

There are different stakeholders whose interests are taken care by the organizational management. Though there can be conflict also while pursuing the interests of these stakeholders. The first example is the conflict between the interest of the society and stockholders. Stockholders want to maximize profit without giving anything away. But, society wants community development initiatives, follow of stringent guidelines to produce least pollutions and create facilities for the community where the organization operates. All these works involve investment and it is in direct conflict to the interest of the stockholders. The second example is the conflict of interest between the customers and employees. The customers want lower price and it will happen with lower cost of input factors of production. Though, the employees demand higher wage and salaries and it drives the prices. So, managing both the interests become a challenge as they are conflicting in nature.
The agency problem refers to the conflicting objectives between the management people and the stock holders. Here, the management of the organization takes decisions that are against the organizational goals, but favors the executives. So, it creates the agency problem.
To resolve or prevent the agency problem, best interest of the organization and the interest of the managers should be mapped in the same direction. For this purpose, the top managers or executives with decision making authority, should be awarded shares under employee stock option plans, cash benefits as a share from the profit earned by the organization and bonuses among the other options. It will prevent the agency conflict in the organization.
It is related to my organization also and the organization issues the stocks to the senior management people, bonuses to all the employees and variable incentives or the sales team at each level of the organization.