Principle Agent Problem

Paper instructions

The question I would like for you to consider is this: Is there a Principal Agent Problem? If so, what should be done to resolve the inherent conflict of interest of managers whose interests are impossible to align 100% with that of the Principal?
It may help to consider this question in the context of Shareholder Value Maximization, where businesses and their managers over the last 40 years have focused their efforts primarily with returning revenue/profits to the Shareholders in the form of Stock Dividends and other methods of compensation. When managers do this, they may focus less on internal investments in the company, whether those efforts are in developing better technology or in developing better employees. In focusing on short-term profits, managers may fail to anticipate long-term trends in business, which may lead to an eventual collapse of the business. Milton Friedman claims on Slide 46 that there is no Social Responsibility for business, is he right?

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