Agency costs reduction family businesses
Due to the involvement of the family in every day process
and operations of the business they are able to reduce agency costs. The agency
theory is based on that the firm’s owner assigns goals to a management team,
known as agents, and they do every day operations of the business. However, a
family owned business, the family member is usually the owner does most of the
work which helps reduce the agency cost.
Other advantages:
·
Less monitoring of owners of agents needed
·
Save money to grow and enter market faster
However, if there is a conflict between family members goals
and values than an agent and governance may be needed to ensure high
performance of the firm and to set try set the most efficient and profitable
goals.
I agree that professional managers could make the business more profitable but when the owner manages the business it reduces agency cost which is still an advantage however if there's a conflict within the family it would be more beneficial to hire professional managers to run the business so that the business doesn't decline.
ReplyDeleteI believe that the agency theroy is closely linked to the concept of FOB corporate governance.A board of directors is usually of vital importance in monitoring managerial behavior and controlling costs. The advantages of having a BoD are many:
ReplyDelete-They can provide in depth expertise at a reasonable price
-Their advise is usually unbiased
-They require no equity participation and serve only at the discretion of CEO
-They may offer new contacts that can lead to new sources of capital
-They may represent source of company continuity
However, the main disadvantage is that the CEO will be the only person accountable in litigation brought against the company.