Ownership, Control and the Principal-Agent Problem: Exploring the Stakeholder Model

The video discusses the divorce of ownership from control, focusing on the principal-agent problem where management (agents) may not act in the best interest of shareholders (principals). It explores solutions like aligning incentives and increasing transparency. The problem is illustrated in political and public sector contexts. The stakeholder model is introduced, highlighting how various parties influence business operations.

What is the principal-agent problem primarily concerned with?

• The legal structure of a corporation

• The financial performance of a firm

• The separation of ownership and control

• The alignment of interests between owners and managers

What is the primary interest of shareholders in a firm?

• Increasing market share

• Maximizing profit

• Maximizing revenue

• Expanding operations

Which of the following is a potential solution to the principal-agent problem?

• Expanding the firm's operations

• Reducing employee salaries

• Implementing bonus clawback schemes

• Increasing market share

How can shareholders address the issue of asymmetric information?

• By increasing market share

• Through greater shareholder activism

• By reducing managerial salaries

• By focusing on short-term gains

In the context of government, who are considered the principals?

• The government officials

• The members of Parliament

• The taxpayers

• The political parties

What was the inappropriate expense claimed by an MP in the example given?

• A vacation trip

• A floating duck house

• A home renovation

• A luxury car

What is a key characteristic of the stakeholder model?

• It focuses solely on shareholders

• It considers the interests of multiple parties

• It prioritizes management decisions

• It disregards community impact

Which stakeholder has the power to take industrial action?

• Government

• Staff

• Management

• Shareholders

Which of the following is NOT a stakeholder in a business?

• Local community

• Competitors

• Management

• Shareholders

What is the ultimate explanation of the divorce of ownership from control?

• The legal framework

• The principal-agent problem

• The financial model

• The stakeholder model