You are given the following details about Facts of Life plc, a company in the conglomerate sector.

Breakdown of activities by percentage of total annual company turnover:

The directors of the company were given share options by its remuneration committee five years ago. In one year’s time the share options will allow each director to buy 100,000 shares in the company at a price of £2.00. The directors’ average annual salary currently stands at £200,000 on a five-year rolling contract basis, while average annual salaries in the conglomerate sector are £150,000 and tend to be three-year rolling contracts.

(a) Using the above information to illustrate your answer, critically discuss the extent to which Facts of Life plc can be said to be suffering from the agency problem.

(b) Discuss how the issues you have identified in part

(a) can be addressed to reduce the agency problem.

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Department stores: 30% Clothing: 24% Building materials: 20% Hotels and catering: 16% Electronics: 10%