conflict-between-managers

Conflict Between Managers and Shareholders

The article deals with the problem of inconsistency of conflict between managers and shareholders, which is expressed in management decisions that can weaken the business model of a corporation and cause direct damage to its financial condition.

Interaction between Shareholders and Managers: the Possibility of Conflict Resolution

Despite the fact that the separation of the functions of the shareholder and the manager brings with it a lot of advantages – from raising the level of management to solving the problem of delegating authority in an expanded and continuing to actively develop business and attracting additional investments – this separation also has its own obvious “costs” very tangible: these are various conflicts between owners and hired managers, based on the difference in interests of the parties (the so-called agency problem). The situation is further complicated by the fact that conflicts can occur between owners and the management team.

By creating large and rapidly growing enterprises, a conflict between managers and shareholders:

  • consolidate their positions, since the purchase of a controlling stake by new investors becomes less likely;
  • increase their own power, status, and salaries;
  • create additional growth opportunities for their subordinates.

The structure and history of the emergence of domestic capital did not initially imply the managerial intervention of third parties. However, tough competition laws have forced many entrepreneurs to abandon direct management of their assets. The main thing, in this case, is to correctly determine the structure of the company’s management, appoint responsible professionals to key positions and ensure a system of control over the leaders.

How to Avoid Potential Agency Conflicts and What Are Some Examples of Agency Problems?

A potential agency conflict arises whenever the manager of a firm owns less than 100% of its voting shares. If the firm is owned by a single person who runs it himself, that owner-manager will act to maximize his own wealth. Potential agency conflicts are important for large enterprises because, as a rule, managers own only a small percentage of their shares. In such a situation, maximizing shareholder wealth may not be the main goal of managers.

If you want to know what are some examples of agency problems, take a look below:

  1. Team turnover.

This is a fairly common problem, but not everyone is generally aware that a corporate event can help to cope with it, at least in part.

  1. Lack of team cohesion.

Team building pieces of training have long been a part of corporate events – nothing contributes to the unification of people as much as joint recreation, play, tests.

  1. Excessive formality at work.

Many companies have a very strict dress code, and there are no “no tie days” at all during the working year. It keeps people on their toes and limits them. In addition, there is strict subordination, business style of speech, and so on.

The methodology of solving conflict between managers and shareholders involves three stages of the assessment. At the first stage, a separate calculation of indicators takes place and a reflection of all significant information environments is achieved. At the second stage, a qualitative assessment of indicators is carried out, which makes it possible to identify the strengths and weaknesses of the corporation, taking into account its industry affiliation. At the third stage, the results of the second stage are agreed upon in the final assessments of the quality of financial management.