Fiduciary Relationship Between Two Parties Agency Issues

• What is an agency?

Agency is a fiduciary relationship between two parties commonly referred to as agent and principal where the agent functions under the principal i.e. the agent holds obligations and responsibilities to the principal. In organisations, agency refers to the relationship between the managers and the shareholders. Hence, the managers hold obligations and responsibilities to the shareholders.

• Agency Problem/Issue

Agency problem is a conflict of interest that arises between two parties where one of them is obliged to the other. In a financial point of view, agency problem refers to a conflict of interest between the management of an organisation and its shareholders.

Ideally, the managers (agent) are obligated to act in the best interests of the shareholders (principal), but when managers break their obligation to the shareholders, it creates a conflict of interest. This conflict of interest usually arises when managers try to maximise their own profits. This is known as agency problem.

• How does the organisation deal with this issue?

Amorepacific employs many safety features in place to prevent such an issue from happening within their organisation. The organisation knows that such issues open the company up to bankruptcy, loss of capital, hostile takeovers etc. Amorepacific approaches this problem by catering to the very two factions that can create such a scenario i.e. the shareholders and the managers.