Answer to Question #183039 in Management for Obed

Question

What is meant by the 'Agency problem' in the context of a Public Limited Company?

How is it possible for the Agency Problem to be reduced in a company?

Answer 1

Agency problem refers to the conflict of interest deeply-rooted in any relationship where one party is anticipated to act in another's interest. Thus, the agency problem in the context of a Public Limited Company refers to the conflict of interest between an organization's management and the company stakeholders.

Agency problem in a company can be reduced by requiring complete transparency, imposing limitations on the agent's abilities, and linking one's compensation structure to the principals well-being.