You are on page 1of 10

[CORPORATE GOVERNANCE ]

Assignment of Corporate Governance


Submitted To:
Miss

Hifza

Submitted By:
Name
Roll #

SADIA FIZZA
1819

B.com Hons (VIII)


2010-2014

Submission Date:
22-05-2014

Topic:
Discuss hypothetically, what are the agency problem in your
University

Lahore College for Women University

Page 1

[CORPORATE GOVERNANCE ]

What is Agency Problem?


In corporate finance, the agency problem usually refers to a conflict of interest between a
company's management and the company's stockholders. The manager, acting as the agent
for the shareholders, or principals, is supposed to make decisions that will maximize
shareholder wealth. However, it is in the manager's own best interest to maximize his own
wealth. While it is not possible to eliminate the agency problem completely, the manager
can be motivated to act in the shareholders' best interests through incentives such as
performance-based compensation, direct influence by shareholders, the threat of firing and
the threat of takeovers.

Agency Problems and Corporate Governance:


We have emphasized the separation of ownership and control in public corporations. The
owners (shareholders) cannot control what the managers do, except indirectly through the
board of directors. This separation is necessary but also dangerous. You can see the
dangers. Managers may be tempted to buy sumptuous corporate jets or to schedule business
meetings at tony resorts. They may shy away from attractive but risky projects because
they are worried more about the safety of their jobs than about maximizing shareholder
value. They may work just to maximize their own bonuses, and therefore redouble their
efforts to make and resell flawed subprime mortgages.
Conflicts between shareholders' and managers' objectives create agency problems. Agency
problems arise when agents work for principals. The shareholders are the principals; the
managers are their agents. Agency costs Losses that arise when an agent (e.g., a
manager) does not act solely in the interests of the principal (e.g., the shareholder).
Are incurred when (1) managers do not attempt to maximize firm value and (2)
shareholders incur costs to monitor the managers and constrain their actions.

Page 2

[CORPORATE GOVERNANCE ]

Agency Problem between Head of Department (HODs) and


Teachers
Differing Values:
The workplace consists of individuals who all have their own perspective of the world.
Some teachers have strong beliefs, which they are not willing to compromise. These beliefs
can conflict with HODs, creating conflict. For example, if one individual strongly opposes
workplace diversity, he may have trouble accepting other teachers different from her. To
avoid conflict with these teachers, he must try to accept or initiate more tolerance of those
with differing values.
So when their values are going to separate direction so it become a huge agency problem
between university structure rules and teachers personal value.

Opposing Interests:
When a teacher decides to pursue her own career goals, without regard for the university
goals and its well-being, it results in strife among her coworker teachers. This occurs when
the teachers becomes so focused on achieving her own objectives, she disregards how it
affects others within the university.
For instance, she may forget that she is a part of a team, in which the goal is to work
together on a specific assignment. Consequently, she may work according to her own
schedule and in the manner she sees fit, building resentment in her coworker teachers.
So when teachers act like that there must build a agency problem between them and with
head of department (HODs)

Page 3

[CORPORATE GOVERNANCE ]

Personality Conflicts:
No two people are exactly alike. Therefore, personality clashes in the workplace are
unavoidable. One teacher may have a reserved personality while another may be more
outgoing and forward. Agency problems arise when the two do not understand or respect
each others inner nature.
For instance, the more extroverted teachers may feel slighted if the more introverted
teacher doesnt talk to her much. She may perceive it as a slight, rather than it simply
being the teachers personality. Furthermore, her approach to handling projects may be
analytical while hers is intuitive. When the two do not understand and respect each
others approach, agency conflict occurs.
When agency conflict occur between two teachers its also effect head of department work
and they also face conflict and non-satisfaction with (HOD), and its effect department
work and university values and reputation.

Poor Communication:
Poor communication leads to misunderstanding and strife among teachers. For instance,
misunderstandings can occur if the (HODs) asks one teacher to relay important
instructions to the other teacher, but the teacher fail to do so appropriately. Conveying
wrong information can lead to projects being incorrectly done and to teacher blaming each
other for the end result.
When teacher face poor communication between other teachers. Then they do not discuss
issues with each other than agency problem occurs. Which affect the university rules and
values which represent its repute in society. So there was a problem of poor
communication in LCWU management system.

Page 4

[CORPORATE GOVERNANCE ]

Personal Problems:
If the teacher has problems outside of the workplace, such as marital or parental issues,
she may take them to work with her. Consequently, if she is short and withdrawn from her
coworker teachers, and if they are ignorant about the cause of her behavior, they will
assume that she has an issue with them. Therefore, if she is not willing to divulge her
problems to her coworkers, she should leave them at home.
When teachers prefer their own interest and want to solve their personal problems first and
ignore their working responsibilities then agency problem is occurred. In LCWU agency
problem occurred due to teachers personal issues.

Incentives Problem:
Something that provides a motive for a person to choose a particular course of action.
Incentives are the big agency problem in the university. Administration wants to maximize
their own profit and not give attention towards the incentives of teachers that create big
issues between administration and teachers.

Decision-Making:
Decision making are the key term in any organization. Every person who are part of the
organization want to contribute in decision making process so that they also feel a big part
of the organization. But in our university decisions are made by the administration only.
Other members have to follow these rules only.

Page 5

[CORPORATE GOVERNANCE ]

Pay for Performance or Agency Problem:


University management has reason & opportunity to manage their firm in a way that
increases their personal rewards. Even if the Rs amounts are small, the managerial
consequences could be significant. For instance, we saw last time evidence that university
CEO pay, tuition, and expenditures rose sharply for most of the last decade while returns
for faculty and for-profit CEOs were relatively flat on average. Universities are
complicated places, and lots of factors could be at work. Maybe presidents were just
doing a great job, and invested their extra resources wisely; making college a better deal
and earning higher pay for themselves.

Controller of the university:


Controller of the university ultimately rests with management. They elect the
management, who, in turn, hires and fires teachers. The mechanism by which unhappy
management can act to replace existing management is called a proxy fight. A proxy is the
authority to vote someone elses position. A proxy fight develops when a group solicits
proxies in order to replace the existing management and thereby replace existing
management.
Another way that management can be replaced is by takeover. Those universities that are
poorly managed are more attractive as acquisitions than well-managed universities
because a greater goodwill potential exists. Thus, avoiding a takeover by other universities
gives management another incentive to act in the employees interests. Information on
executive compensation.

Systematic Differences:
Strong complementarities between the structure of share ownership and the types of legal
strategies relied upon most heavily to control agency costs. Since the efficacy of
governance mechanisms is closely linked to the extent to which principals are able to
coordinate, it would be surprising if the structure of share ownership did not affect the
extent to which these strategies are employed to control managers.
Page 6

[CORPORATE GOVERNANCE ]
In most jurisdictions around the world, the ownership of shares in publicly- traded firms is
concentrated in the hands of relatively few shareholders whether families or institutional
investors. With such ownership patterns, owners face relatively low coordination costs as
between themselves, and are able to rely on governance strategies to control managers.
Where ownership of shares is more diffuse, however, governance mechanisms are less
effective, and there is more need for regulatory mechanisms to take the fore.

Initiation and ratification:


The power of principals to intervene in the firms management. These are decision rights,
which grant principals the power to initiate or ratify management decisions. Again, it is no
surprise that this set of decision rights strategies is much less prominent in corporate law
than are appointment rights strategies. This disparity is a logical consequence of the fact
that the corporate form is designed as a vehicle for the delegation of managerial power and
authority to the board of directors. Only the largest and most fundamental corporate
decisions (such as mergers and charter amendments) require the ratification of
shareholders under existing corporation statutes, and no jurisdiction to our knowledge
requires shareholders to initiate managerial decisions.

Research Problem
Research development is included in the vision, mission statement of Lahore College for
Women University but we see not too much efforts for the research even not too much
guidance provide to students for research we see teachers are not corporative and their
communication skills are very low they make a distance with students in our university.
Even our labs are not up to date labs have lacks in providing apparatus. Our department
computer lab is build last which is too late. Poor infrastructure, quality and low standards
of labs also disturb the teachers if they dont have proper environment for research than
how they guide their students.

Page 7

[CORPORATE GOVERNANCE ]
The research used documents as the primary source of data. These included policy papers,
reports, credentials and University Policy Documents such as Strategic Development
Plans, committee reports, workshop reports, conference reports, other researches which
have been carried out in this area, and newspaper articles.
The government of Pakistan plays a central role regarding the management of higher
education. It is done through a range of method such as direct funding, appointment of
university governing bodies, legislative regulations and day-to-day direct involvement or
interference in the procedures of these institutions. Higher education has been the center of
Pakistans national politics with different groups competing for control and influence. The
state in Pakistan has not adopted the supervisory model of governance as it still feels a
stake in higher education.
This is creates an agency problem in LCWU by which students and teacher and university
itself bear a cost.

Bad governance in LCWU:


LCWU is now focus on profit generation not on provides high quality of education
they take large number of student in one class and then fail to manage large
number of students.
They required large number of funds from students except fees which they pay
every semester.
LCWU policies are bad this rules and regulations are not provide a good or
efficient view of higher universities their management structure is very old and
need to develop their rules and policies.
LCWU have to the identity their culture and develop it according to new
technology management have to give freedom to individuals to make decisions up
to some extends.

Page 8

[CORPORATE GOVERNANCE ]
Library management does not keep the university library well-maintained. Most of
the times, agent receives the library stipends but the output is not according to the
input. Departmental libraries lack new research articles and up-to-date version of
books. The chief librarian is responsible for: retaining the library circulation in
good condition, encoding of new books in the catalogue, keeping the library neat
and clean, providing the adjacent library environment to the students, endeavor to
meet students complaints. But unfortunately, the agent puts most of the the funds
in its own pocket and no heed is paid to the proper management of the library. Due
to this reason the agency problems occur that are characterized by costly agency
problems.
Union workers mostly stand against the agency. Due rights are not given to the
agents; conversely they are expected to do their job strictly. In the conflict between
workers union and university management, agent is insufficiently paid by the
agency. In response to agencys deception, union gets on to strike. This further
leads to the distorted management issues. So in this way the agency problem arise
between the university union(agent) and the senior management(principal).
These are points which effect the university values by which university bear a cost
this is called the agency problems.

Page 9