Management, PrincipalдЫТagent problem, Strategic management

The principal-agent problem arises from the conflict of interest between the principal as represented by the shareholders and the agent as represented by the officers. The shareholders represent the owners of the organization and they want to maximize the wealth of the organization by investing in high-risk projects which offer high returns. However the officers may be reluctant to invest in the high-risk projects because this might put their job security in question. For this reason there is a conflict of interest which leads to the principal-agent problem. A review of the principal-agent problem is useful in terms of creating an organizational structure which synergizes principals interest with the agents interest. This organizational structure optimizes the decision-making process to