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Principal-Agent Conflict

Categories Business, Conflict, Corporate governance, Management, State

Essay, Pages 3 (599 words)

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Essay, Pages 3 (599 words)

The principal agency problem at HP is not isolated. World over, many companies have found themselves embroiled in scandals due to their employees violating their ethical policies. However, what is interesting in the case of HP, is the fact that this is a public stock company. The cases of ethical Conflicts at the company keep recurring without any sign that they are about to stop. From Patricia Dunn’s spying scandal to Whitman, to the immediate former CEO Mark Hurd, CEO who has recently been dogged by sexual harassment accusations by Jodie Fisher female marketing contractor (Mark Hurd Letter Released: 10 Most Embarrassing Quotes From The Ex-HP CEO’s Controversial Letter, 2011), the company clearly has an ethics problem.

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What is even worrying is the disregard that the board has in dealing with these scandals begging the question: Does the Board have the Shareholder’s interests at heart?

Alternatives

Since the executives at HP have proven to be a setback to the company’s shareholders’ value through their unending boardroom drama, the shareholders should escalate the conflict in the legal realm.

Perkins’s ethics case was the first one (Kaplan, Breslau, Stone, Joseph, McGinn, & Gordon, 2006). Patricia Dunn, Whitman, and Mark Hurd have later followed with ethical scandals though of a different nature. All these should have been taken to court by the board for violating the company ethics policy. Though Dunn notes that there was a legal case after her case (Bain, 2006), the Board continued violating the core values. Where the legal realm does not yield any fruits, the shareholders should facilitate the independence of their board of directors.

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This can be achieved by ensuring that the Board meets several during the year to discuss the strategic direction of the company. This way, HP can avoid some of the losses occasioned by the mistakes of previous CEOs. It would also help restore the lost companies’ trust.

The Board also needs to develop and implement a policy document providing guidelines on inter-board member dealings. If such a policy existed, board members would not, for instance, have hired investigative spying agencies to spy on fellow board members. They would only apply what is provided for in the policy. As a matter of fact, the policy should be designed such that it is mutually exclusive and collectively exhaustive in order to address all the grievances harbored by the board members. Some of the issues that need to be ingrained in the policy should include; the role of the board in the hiring of the CEO, reporting of the CEO to the Board, functions of the board, its independence, composition, confidentiality, and consequences on the violation.

Conclusion

It is apparent that in the HP mini-case the conflict between the CEOs and the Board of Directors is to blame for the destruction of the market value of the shares. In fact, this mini-case is a perfect example of how catastrophic the conflict can be. I recommend that the Board gets firm in its oversight role and ensure that the CEO is solely responsible for their decisions. The Board should also effectively take charge to ensure that corporate governance takes its place in promoting accountability on behalf of the shareholder.

References

  • Kaplan, D. A., Breslau, K., Stone, B., Joseph, N., McGinn, D., & Gordon, D. (2006). SUSPICIONS AND SPIES IN SILICON VALLEY. (Cover story). Newsweek, 148(12), 40-47.
  • Bain, M. (2006). TROUBLE IN THE BOARDROOM. (Cover story). Newsweek, 148(12), 44-45.
  • BIBLIOGRAPHY Mark Hurd Letter Released: 10 Most Embarrassing Quotes From The Ex-HP CEO’s Controversial Letter. (2011). Retrieved from HuffPost:
  • Rothaermel, F. T. (2017). Strategic Management, 2e. New York, NY: McGraw Hill Education.

Cite this essay

Principal-Agent Conflict. (2019, Nov 18). Retrieved from https://studymoose.com/principal-agent-conflict-essay

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