Corporate Governance ( principal-principal conflicts) - Essay Example

A conflict between employees and employer is an example of principal – agent conflict. Such a conflict can bring about obstacles in the productivity of a business along with potential hazard to morality of the employees. Both principal – principal conflict and principal – agent conflict could be resolved if certain standard principles are followed by the owners and shareholders of an organization. In case of these conflict, internal and external mechanism can be applied to reduce conflict issues.

Internal mechanism in case of principal – principal conflict can be in the form of reduction of block holding and crossholding and by formulating an independent board of directors. Decentralization of the ownership is another way to reduce principal – principal conflict. A separate CEO and chairperson should be appointed in corporate firms to avoid disagreement between major and minor shareholders. External mechanism involves protection of minority shareholder through enforcement of law. In case of principal – agent conflict, internal mechanism involves better remunerative package and stock allotation and external mechanism involves better corporate law along with merger and takes over practice.

Principal – agent conflict is common in U.S and U.K as the power is vested with shareholders and agents are controlled autonomously by them. In this situation, the agents tend to get dissatisfied with the compensation or facilities offered by the management. U.S. and U.K has numerous corporate firms which are privately owned and these often encounter disagreement with employees on matters concerning remuneration, benefits and working conditions. Since the autonomous power to take decision is held by shareholders, the interest of employees are sometimes given less importance.

This kind of condition brings loss to company and agent in many ways as the relationship between them gets