Which of the following would be best considered to be an agency conflict problem

Question

Which of the following would be best considered to be an agency conflict problem in the behavior of the following financial managers?

A.

Bill chooses to pursue a risky investment for the company's funds because his compensation will substantially rise if it succeeds.

B.

Michael chooses to enhance his firm's reputation at some cost to its shareholders by sponsoring a team of athletes for the Olympics.

C.

James ignores an opportunity for his company to invest in a new drug to fight Alzheimer's disease, judging the drug's chances of succeeding as low.

D.

Sue instructs her staff to skip safety inspections in one of the company's factories, knowing that it will likely fail the inspection and incur significant costs to fix.

Explanation / Answer

The role of a financial manager should cope-up with the best interest of an organization. The decision would not be intended to make personal gain. as considering three given alternatives, Michael enhances reputation by sponsoring athletes and ignorance of investment in drugs are to protect the organization from future failure. Mr. Sue also skips safety inspection to save significant cost of it.It means their role as a financial manager is correct and does not suffer from agency conflict problem.

However, Mr. Bill chooses risky investment to make personal gain than anything else. it will substantially increase the compensation of him. Hence, this is an agency conflict problem.

Therefore, option A is correct.

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