Name: Norhan Abd Elrahman Mabrouk Soukar

ID: 4230
Accounting & Finance (B)
1- What does agency conflict/problem mean? And what are the basic causes
of agency problem?
Agency problem In order for the agency problem to occur, there must be a
relationship between an agent and a principal. It is the problem that occurs as a result of
disagreement in the interests between the company's managers and shareholders.

There are 2 basic causes:

▪ The separation of ownership and control.
▪ The primary reason is that contracts between the agents and the principals are
incomplete because there are circumstances that can happen and that cannot be
predicted before they occur, such as Covid 19.

2- What types of managerial failures prevent management from acting in

the best interest of the shareholders?
There are two types of managerial failures:
▪ Managerial incompetence as a result of unintended mistakes or neglect in
performing fiduciary duties.
▪ Failure resulting from the deliberate mistakes of managers through illegal actions
that harm the interests of the company and its shareholders.

3- What does corporate governance mean? And how can corporate

governance alleviate agency problems?
Corporate governance Corporate governance is a system of rules and laws that
are established to control and organize companies and prevent problems that occur
between managers and shareholders and protect the rights of shareholders and
stakeholders such as creditors, society, employees and customers, corporate governance
also provides the framework for attaining a company's objectives. Corporate governance
is used to describe the way a company is managed and monitored. Corporate governance
is a field in economics that investigates how to motivate management of corporations.
One of the importance of corporate governance is that it organizes the power between
managers, board of directors and stockholders.
The agency problem cannot be eliminated by 100%, but corporate governance helps to solve
this problem by a large percentage, but not by 100% . This is done by:
▪ providing incentives to managers to encourage them to carry out their work efficiently
and by providing incentives through stock options, ownerships, and compensation
plans.
▪ Writing contracts that allow shareholders to control and monitor management.
▪ Strengthening shareholders’ democracy by giving them the right to elect the board of
directors and allowing them to view annual reports, make suggestions to
 management, and vote on important corporate events such as acquisitions and
mergers.
▪ Permanent monitoring of management by the Board of Directors.
▪ improving the effectiveness of both internal corporate governance mechanisms and
external corporate governance mechanisms.

4- What is the difference between a shareholder and a stakeholder aspect of

corporate governance?
Shareholder aspect:
In this aspect, it depends mainly on the interests of shareholders and the protection of their
rights, this is through the shareholders electing a board of directors to act on behalf of the
shareholders, and the board of directors appoints managers and monitors them, With the
increase in the number of shareholders, their control over the company decreases, and the
executive managers increase their control over the company. Therefore, it must be
emphasized that the management works for the benefit of the shareholders. In this aspect, it
is ensured that the interests of the shareholders are consistent with the interests of the
managers. As a result of the difference in interests between management and stockholders,
the agency problem arises, and corporate governance tries to set laws and rules that help
reduce this problem, and tries to reduce agency costs and unify the interests of management
and stockholders.

Stakeholder aspect:
In this aspect, attention is given to all stakeholders related to the company.
Stakeholders including:
a) Contractual participants such as shareholders, creditors, suppliers, customers, and
employees.
b) Social constituents, including the local community; society and global partners; local,
state, and federal governments; and environmental matters.
Under this aspect, public companies must be socially responsible. performance of public
companies is not only measured by financial indicators, but also by , social indicators, ethical
indicators, and environmental indicators.
5- What entities or groups of individuals are responsible for the oversight,
monitoring, and compliance functions of corporate governance, and what
are their basic responsibilities and duties?
Oversight function:
This function is performed by the board of directors, and the board of directors supervises
the management to ensure that they work for the benefit of the company and the
shareholders.
Monitoring function:
This function is performed by the shareholders, specifically those who have the right to elect
the board of directors, as they elect the board of directors, and the board of directors appoints
the management, and the shareholders submit proposals that may affect the company.
Compliance function:
This function is composed of set of laws, regulations, rules, standards, and best practices
developed by state and federal legislators, regulators, standard-setting bodies, and
professional organizations, it helps in organizing the company in order to achieve the goals.