Agency Problem in Bangladesh

Agency problem is very common in Bangladesh. It might be inherited in our culture. Most of the young people interested in govt. jobs are looking for secured a job with less challenges in daily work life. They don't want a goal oriented or target driven work environment. Though there are many exception, like defense. law enforcement, local administrative jobs etc.

National private companies have mixed job environment. Many organizations are still in primitive stage. They pay the least amount to employees when labor union is very uncommon. Practice of good corporate governance and tools of agency problem reduction is getting evolved in leading group of companies. There is a long way to go in this issue.

Agency Theory

Under the Principal-Agent theory there is a trade-off between incentives and risk sharing. Managers are motivated to work hard through “high powered” incentives. They are also protected from risk through “low-powered” incentives. For example, compensation that is insensitive to a firm’s performance.

Since the agency theory argues that people are motivated by their self-interest, managers will aim to maximize the firm value only if it is in line with their own best interests. This can in effect lead to a conflict of interests.

Agency Costs

Auditing, budgeting, control and compensation systems can arise when there is a “conflict of interest” between managers and shareholders. Reducing agency costs increases a firm’s value. If a conflict of interest arise governance structures can facilitate decisions. Such issues might not included in the original principal-agent contract through the allocation of residual rights of control over the firm’s nonhuman assets.

Reasons

Poverty & Inequality in economy develops a culture where everyone wants to be in safe side. So employees doesn't want to get their job aligned with the performance of the organizations.

The companies are focused to profit not to sustainable development.

Human is the least cost resource. If you face agency problem replace the employee.

Organizations have hardly enough focus on Organization Culture development.

Way Out

Developing culture and awareness are the keys here. First of all the employers' focus should be shifted to organizational culture. People work under a supervisor, not under a company. So the guided behavior of supervisors will lead to a sustainable development.

Please share your thoughts in comments.

Comments

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