Agency problem

Discuss the ‘agency problem’ and its solutions in relation to approaches to strategic change that might be adopted in organisations (i.e. revolutionary or evolutionary approaches). In other words, apart from environmental pressures to respond to changed conditions, does agency theory and its assumptions help you explore why some strategic decision makers might adopt revolutionary or evolutionary types of strategic change?

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When an organisation faces the agency problem, it can lag behind in its desire to achieve the organisation purpose and objective.  Often, there is a lack of information symmetry in an organization and this may leave employees feeling short-changed in the agency relationship hence resort to compensate the information imbalance in a way that inclines their course in a direction that offers them higher advantage yet leaving the general organisational purpose unachievable as spelt out in the mission and objectives.

Therefore, when the interests of the organisation’s stockholders and that of other stakeholders such as the board of directors and management are not aligned, the best projection that can be made out of it is an agency problem that calls for concerted effort from all the stakeholders to address. The organisation may simply come to a standstill. The agency problem is a serious subject that must be addressed because the conflict arises from the fact that the parties causing it have a vested interest in the organisation.

Scholars have suggested various ways of resolving the agency problem. For instance, reducing the information asymmetry predominantly comes up as a remedy to reduce the conflict (e.g. by Hill and Jones 2010). A twist in the agency conflict is complicated by the fact that the problem is integrall.............