Fill in spots.

1- An agent and a principal/an employee and a supervisor

2- merging/speration

3 - usurping/ delegation

4- conflict reslution/ agency

Agency conficts are a special example of a conflict of interest; specfically, they are created by the relationship between motivations of the different parties. The magnitude of these conflicts may be made larger or smaller by the environment in which they accur and the availability of techniques or events to prevent, reduce, or rectify them. and result from inconsistencies or disputes between the interests and For example, in businesses managed by professional managers, managers frequenty have less financial and emotional commitment to the business than the firm's owners (the firm's common shareholders). The of ownership and managers create an environment in which these conflicts can take root. management and the of dedision making by the owners to the professional Left unaddressed, these conflicts can produce significantreal and opportunity costs that the firm's shareholders and other stakeholders must bear. Examples of management behaviors that are not in the best interests of the firm's shareholders include shirking, an excessive consumption of perquisites, an excessive concern with job security reduced or excessiverisk taking, and/or undertaking activities that are prindipally intended to expand or enhancea manager's ego, prestige, or power To prevent, reduce, or correct these conficts between their managers and themselves, shareholders often have to incur additional real costs called costs In general, there are four categories of real or opportunity costs incurred by shareholders designed to prevent, mitigate, or correct management-shareholder agency conflicts. They are: 1. Expenditures to minimize management's desire to act contrary to the best interests of shareholders 2. Expenditures to monitor management's activities 3. Expenditures to provide a bond against management dishonesty 4. The opportunity cost of lost profits Consider the following situation and identify both the category of the expenditure and the best device that might be used to prevent, reduce, or correct the agency conflict: A firm's president and management team are all buddies and run the organization to make the president laok gaad in the WaW Street Journal. Expenditure category: Most appropriate form of control device Enforce a corporate govemance independent board of directors that will vigorously oversee and take action against the president and the management team itf warranted. Increase the pay and bonus of the president and the management program that provides for an 03 team O Identify a competitor to take over the company