Agency Problem

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Agency is a concept important and organizations whereas principal begins to delegate tasks due to the overwhelming amount of tasks that a principal may have on their plate.

The agency problem can come from two sources both the principal and the agent.

Agents can be said to have more practical experience as they are the ones executing on the ground. Principles, unless they have heavy experience as agents themselves, will lack the tactical know-how and work from a largely theoretical perspective.

Big Picture Examples

  • Churchill, in the fourth volume of his masterpiece, The Second World War, talks about Lord privacy seal who suggested to Churchill that he replaced the war cabinet with more theoretical advisors. Churchill insisted that the only capable people for the war cabinet, were people who had executive responsibility on the ground. They cannot be neutral observers, administrators, theoreticians. Churchill accurately pointed out that those with experience are truly rare, because they have they are busy with leading and executing on the ground at the highest level. This is an example of pro o s e integration where the leadership comes from people with heavy underground experience. This is opposite the standard model of business school, which nurtures administrators who frequently lack the underground experience unless they have actually done the work themselves.