International Business Structures Law assignment on strategies organizations can use to identify suitable agency problems
Task: how can organization identify suitable agency problem strategies using International Business Structures Law assignment research methods?
Question:Identity and then critically evaluate the various legal strategies available to attempt to overcome the agency problem commonly experienced in the corporate form regarding related party transactions
This International Business Structures Law assignmentexplores strategies to overcome agency problems being experienced by an organization. The problems in the agency mainly rise in the business whenever an agent has to face the expectation to act in the best interest of another party which is also known as the principal. The conflicts associated with the interest mainly arise when the agent makes pains on a personal basis by not acting on the base of the principal's interest. There are several strategies to overcome agency problems in corporate firms by making full transparency, placing the proper amount of restrictions on the capabilities of agents, and also tying the compensation structures for the proper well-being of the principal. The International Business Structures Law assignmentagency theory mainly suggests corporate governance to reduce the agency costs that lead to the improvement of the firm performance. Agency problems are detailed below which mainly take place in corporate firms that are to be mitigated to make serious problems from corporate firms.
International Business Structures Law assignmentAgency Problems
In some instances identified on this International Business Structures Law assignment, the advisor has several fiduciary responsibilities to act in the best interest. But at some point, the incentives mainly exist for the advisor in order to undermine the firm's interest and put agents' needs first. It can be said that at the time financial goals are associated with a growth stock, the agent knows that a mutual fund is the best option for money, then the agent tends to make a higher commission by placing the funds in an annuity. It can hamper the goals of the corporate, but the agents will not step back to understand and act by the company's reputation. These are some severe examples of agency problems . The conflict of interest mainly stems from the financial advisor to the agent having a clear financial incentive to act in such a manner that is not the best fit for the principal. The Principals mainly hire agents in order to represent the organization's interest and also act on their behalf. The agents are most often hired in order to obtain business skill sets that the principals lack in order to accomplish the firm's environment. Therefore, in the business world, there is a relationship associated with the company's management team and also with the shareholder's corporation. Therefore, the agents are considered the sole advisors in financial matters on behalf of the organization. There are some strategies listed below that are followed by corporate firms in order to decrease the fraudulent agents and act wisely on behalf of the organization’s interest.
There are many authors identified on this International Business Structures Law assignment that have found that the separation of specific ownership from control, conflict of interest, asymmetry of information, and risk averseness are some of the main causes that are leading to the cause of agency problems. On the other hand, it was found that the structure of ownership, executive ownership, and the mechanism of governance is associated with a wide structure that can minimize the problems and costs associated with the agency. Therefore the firm should change the overall capital structure and also increase the equity or the debt ratio. In other words, greater financial leverage mainly helps in reducing the agency cost by the impact of managers . This includes liquidation and the overall pressure of making the money to pay the debt of interest and the principals as well. There are specific rooms created for the agent in order to act in an opportunistic matter within the scenario. Successful implementation of strategies will definitely help organizations overcome the issues associated with agents in varied ways.
International Business Structures Law assignment stratogies:
• Full Transparency: The agency problems are mainly prevalent at times of disparity of knowledge between the principal and the agent. The agent find it easy to exploit the knowledge gap in the order for personal gain. Therefore when there isan agent-principal relationship that arises in the business, there is a need of practicing full transparency which will help in closing the knowledge gap and prevent the agency problem. The agent needs to take a decision on the behalf of the principal, rather than making the firm in the dark. This International Business Structures Law assignmentsystem often helps the organization to mitigate issues, as when transparency is maintained in relation to the principal and the agent, and then several fraudulent cases can be removed from the firm. Therefore it has a positive side, but if a transparency check is not maintained by the hierarchy of the firm on a regular basis, then it can seriously deplete the ethics and morality of the firm.
• Placing proper amount of restrictions on the capabilities of agents: There are several challenges that come up with the firm when agents are given the power to act on the behalf of the organization. This can lead to making poor choices mainly in financial advisory areas. Therefore it is the duty of the director to practice checks on the balances which temper the power of an individual entity and also in decreasing corruption to a minimum level. This principle will help the firm strategically improve the current situation. These tactics also have some advantages and disadvantages too. This is because when placing restrictions, the authority needs to check on the domains of restrictions made . If any point is missed, then the agent can completely take advantage of that point and can deploy the firm. Therefore, it is the duty of the authority to have little or more knowledge on each and every aspect that is needed to run a corporate firm. This is because as soon as the agents will recognize that the firm lacks knowledge on a particular subject, they will immediately make a business out of it.
• Structures of Commission and Bonus: There are several problems that come up from the financial incentives that encourage conflicts of interest. This is because returning to the financial advisor's compensation; the agency's problems are mainly tied to the financial products that are offered by the agent. Therefore, the product which pays the highest commission is not always the best choice. This is because the advisors are at times forced to select in doing right planning for the client in maximizing the paycheck. Therefore, if the advisor receives a proper salary on total assets by specific management than product sales, the problem of the agency will disappear. This is again considered the most vital point in the strategy list, as commission structure helps to identify the overall financial structure that the organization follows. So this International Business Structures Law assignmentsystem if maintained in a systematic way on the organization's behalf, then will definitely help in solving agency-related issues.
• Regulatory Strategy: This legal strategy helps in dictating the legal terms for the principal that is governing the principal and agent relationship. This mainly aims to regulate the behavior of the agent by enforcing rules on them. The Corporations Act and the regulations which are made under the Corporations Act are based as the core of the regulations in Australia . It can be said that in Australia, they do not have a general corporate rule for all organizations. But the listed organization mainly makes a benchmark of their corporate governance practices which are against the ASX Principles. Therefore the companies that are listed are not permitted to adopt the ASX Principle but are mainly encouraged in practicing so. This regulatory body mainly helps in resolving disputes within the organization and also reduces agency problems by decreasing the number of fraudulent agents that are mainly held accountable . These are some of the laws that are mainly incorporated by the government which is also known as corporate governance. This helps the organization, in saving the ethics and principles of the firm from the initial stage, so that the agent cannot act create any further issues that can create a mess in the organization. This is because once the laws are implemented; no interference with company policy or revision has to be done or is entertained by the agent's end.
There is an increase in the emphasis on the companies to address and clarify issues associated with corporate social responsibility, which is both throughout the globe and also in Australia. This has mainly become a common practiceon social, ethical, and environmental issues of corporate firms. The problems of agency mainly occur when the conflict of interest keeps one party away from acting well to another party. Therefore such steps are very important in making the firm organized and in minimizing the chances of agency problems commonly faced by the organization. Therefore this International Business Structures Law assignment concludes that it is very important for corporate firms to incorporate the corporate laws that are needed in order to make mitigate agency problems.
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