First blank answers: "An agent and a principal" or "an employee and a supervisor"

Second blank answers: "Separation" or "Merging"

Third blank answers: "usurping" or "delegation"

forth blank answers: "agency" or "Conflict resolution"

The nature and effects of agency conflicts Agency conflicts are a special example of a conflict of interest; specifically, 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 occur 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 frequently have less financial and emotional commitment to the business than the firm's owners (the firm's common shareholders). The of ownership and management and the managers create an environment in which these conflicts can take root. of decision making by the owners to the professional Left unaddressed, these conflicts can produce significant real 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 excessive risk taking, and/or undertaking activities that are principally intended to expand or enhance a manager's ego, prestige, or power To prevent, reduce, or correct these conflicts 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 vice president uses the company's private jet to take unauthorized personal trips on the weekends Most appropriate form of control device: Expenditure category: O Identify a competitor to take over the company O Purchase an insurance policy that protects against unauthorized use of the company's assets O Conduct internal audits of the aircraft log books to determine who 4 is using the plane, when, and for what purpose