The agency problem is a conflict of interest between management of the company and other stockholder ,the manager need to maximize his own income while on the other hand he need also to act to maximize shareholder wealth which create conflict of interest  .

Its exists in practically every organization  withier is business , nonprofit or even club ,each organization need to resolve this problem ,using  continues screening process , bonus, incentives and rule for good and bad behavior, as example company need to hire employee to do specific job , the employee need to have higher income as much he can , while the company don’t need to do that to maximize the profit this causes the agency problem .

While it is not possible to eliminate the agency problem, we need to minimize it as much as we can usually using incentives to make people act to best interests of the company, this should be performance-based compensation, action plan for low performer and promotion of others

A good example for agency problem is when company make loss but the accounting department fabricate the document to make the company look good the stock rise and the management start sell the stock with high price , while they should consider care of shareholder .

 

Ahmed Saleh

 

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