BBG 101 Lecture Notes - Lecture 5: Law Of Agency, Stock Exchange, Secret Profit
13 Aug 2020
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Document Summary
Objectives of management may differ from shareholders. Managers may be satisfiers rather than maximisers: management plays it safe, rather than maximising the value of the firm. Introduces a potential conflict: agency or problem, or, ethical decision making. Problem with companies is that when companies are quite big, managers don"t make decisions to increase wealth but rather decisions to benefit the company in other ways. Agency law is part of commercial law. It is a contractual relationship between a person (the agent) who is authorised to act on behalf of another (the principal) Agent can create legal relationship with third party. As part of a necessity, or by cohabitation, by status (such as a partnership) or working relationships. Not all employees are agents for the employer. This will depend on the type of work carried out: sales people are agents for the employer as they are arranging sales, managers tend to be agents as they enter into contracts for the employer.
