What are Principal-Agent Problems?

For example, a company's stock investors, as part-owners, are principals who

rely on the company's chief executive officer (CEO), as their agent, to carry out a
strategy in their best interests. That is, they want the stock to increase in price or
pay a dividend, or both. If the CEO opts instead to plow all the profits into
expansion or pay big bonuses to managers, the principals may feel they have
been let down by their agent.

There are a number of remedies for the principal-agent problem, and many of
them involve clarifying expectations and monitoring results. The principal is
generally the only party who can or will correct the problem.

Challenges (1)

♦ To achieve excellence in Corporate Governance

♦ To permanently meet the mix of

— strict legal regulations

— regulatory requirements

— softer best practice guidelines

♦ Global applicability versus compliance with local jurisdiction

♦ Conflicting rules in a transborder environment

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Challenges (2)

♦ Timely implementation of best Corporate Governance throughout the

Group

♦ Consisteny in internal rules and regulations

♦ Internal controls and documentation

♦ Education and Training