Principal-Agent Problems Are Caused by Insufficient Oversight by Company Directors

Topics: Principal-agent problem, Governance, Management Pages: 4 (1183 words) Published: May 28, 2013
Discuss the following proposition in the context of the professional sporting clubs in this case (you may choose to focus upon only the Essendon Football Club): ‘Principal-Agent problems are caused by insufficient oversight by company directors.’

Corporate Governance is a complex field that started to develop very quickly this last decade. The collapse of international firms, the financial crisis, the international scandals, the pressure from the governments and non-profit organizations… are all participating factors that make Corporate Governance an important concern of everyday business. Some theories try to put in place “the best way” to solve all the problems that present to the organizations. These studies suggest to us the following question.

Do different interests from the operators cause the organizational issues?

Through the expertise of the governance theories we will discuss the issue that exists between the owners and the managers of companies (Principal-Agent).

This case study deals about the recent outrage that happened this summer about different cheatings in the Australian sports field. As part of this, Essendon players used banned substances to enhance their performance. This problem was quickly linked, by the experts, to the lack of governance and rapidly became the center of attention.

The principal-Agent issues are caused by insufficient oversight by company directors: Lack of control.

Discussing this point comes to define the obvious. What is the directors’ control? Do the managers need to have their own liberty? All these questions show how important are the definitions of the relationship between the Principal and the agent. The shareholders and the agents. The agency theory discusses this point. Regarding to the work of Jensen and Meckling (1976), “ the agency theory identifies the agency relationship where one part (the principal) delegates work to another part (the agent).” Some issues are related to this self-control...
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