Group QUESTION 2

Presentation 1 AGENCY THEORY:

PREPARED FOR:
DR. RUSLAINA BINTI YUSOFF MANAGEMENT-
SHAREHOLDER DISPUTE

PRESENTED BY
GROUP 2

FACULTY OF ACCOUNTANCY | ACCOUNTING: THEORY AND EMERGING ISSUES (FAR661) | D1AC220/6C

Hello
classmates!
We are
Group 2!
 INTRODUCTION

DESCRIBING THE COMPANY

AGENCY THEORY

The PRINCIPAL-AGENT THEORY

Contents THE AGENCY PROBLEM

NATURE OF DISPUTE

SOLUTION

CONCLUSION
 INTRODUCTION
Agent and Principal have different roles in a company

The shareholders own the company because they provide capital to the company and own
the shares while the managers will manage it.

This presentation will discuss further the separation of ownership and control between
shareholders and directors can sometimes cause confusion in company management.

There is an inclination on the part of the shareholders to participate to a greater extent in the
company’s affairs.
DESCRIBING THE
COMPANY
Presented by:
Syaza Nadhirah Binti Shaharadin
 Describing
Robert William Miller

27 January 1879
company

West Lothian, Scotland R. W. Miller was an Australian company that

had interests in coal mining, pubs and
shipping. The company was named after its
founder Robert William Miller (1879-1958).

R. W. Miller was founded in 1923 as a colliery

proprietor and coal dealer. It became
involved in the coastal coal-carrying trade of
New South Wales to convey coal between
Newcastle and Sydney.

coal mining shipping

 R. W. Miller owned many coal mines in the Hunter
Valley. In 1942, a brewery was purchased in
Petersham. This was followed by the purchase of

Legal Case many pubs. In 1967, the Miller's Brewery was sold
to Tooheys, followed by the pubs in 1968.

In the late-1960s and early-1970s, TNT, Ampol and

Howard Smith built up substantial shareholdings
with takeover offers by the latter two resulting in
a protracted takeover battle resulting in an
important legal case and subsequent appeal to
the Privy council, Howard Smith Ltd v Ampol
Petroleum Ltd.

In 1979, Howard Smith's shareholding was

increased to 67% when it acquired Ampol's
Howard Smith Ltd v shareholding and in February 1985 it took 100%
Ampol Petroleum Ltd. ownership. In 1988, R. W. Miller merged with Coal
& Allied.
AGENCY THEORY
Presented by:
Siti Zubaidah Binti Mohd Kornin
Agency Agency theory is based upon the more general contracting theory that the
Theory most cost effective form of organizing economic activity is through a firm
based structure.

Defined by Jensen and Meckling (1976)

Jensen and Meckling describe an agency relationship arises when there is a
contract under which one party (the principal) engages another (the agent) to
perform some services on the principal's behalf.
PRINCIPAL-AGENT
THEORY
Presented by:
Siti Zubaidah Binti Mohd Kornin
 PRINCIPAL = SHAREHOLDERS
A party who delegates others to
perform some services on his or her
behalf. The principal often contracts
with an agent to safeguard and
enlarge a pool of assets which the
principal owns and with which the
agent is entrusted
AGENT = MANAGERS
A party engaged as a steward to
perform some service on the behalf
of others, often involving
safeguarding assets belonging to
them. The principals delegate
decision making authority to the
agent
 Comparison
PRINCIPAL = SHAREHOLDERS AGENT = MANAGERS

Principal knows agent has access to ASYMMETRIC Agent has the access to superior
superior information INFORMATION information

Principal incurs monitoring costs to Agent may be able to act in ways

attempt to make sure agents acts in MORAL unfavourable to or not approved by the
appropriate ways HAZARD principal such as shirking and fraud

A) Budget constraints, auditing MONITORING Agents also benefit from monitoring

B) Profit sharing, stock options and COSTS activities like an audit since such
similar incentive plans to align agent’s devices permit them to demonstrate
self-interest with principal’s interest effective performance and charge more
for their services
THE AGENCY
PROBLEM
Presented by:
Nur Anis Aqilah Binti Muhammad Roslan

At the core of the analysis is
the ‘agency problem’
Agency problems arise because of
inefficiencies and information
asymmetries
The agency problem relates to issues
associated with motivating one party
(the agent) to work in the best
interests of another party (the
principal)
The agency problem leads
to ‘agency costs’
NATURE OF DISPUTE
Presented by:
Nur Anis Aqilah Binti Muhammad Roslan
Aniisa Athirah Binti Muhammad Edrus
 Any dispute arising out of or
relating to this Agreement,
WHAT IS including without limitation,
the interpretation of any
NATURE OF provision of this Agreement
or the breach, termination or
DISPUTE? invalidity of this Agreement
(a "Dispute") shall be settled
exclusively and finally by
arbitration.
 CASE 1: Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821

In Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, both Smith and Ampol held shares in
Millers. The case arose out of a dispute between the two companies in relation to the takeover of
Millers.

The combined shareholding in Millers of Ampol and Bulkships (a company with which Ampol was
associated) was 55%. Ampol made a takeover bid to the board of Millers, but it was rejected by the
directors of Millers for being too low.

Later, a higher takeover bid was followed by Smith. In response to this, Ampol and Bulkships
issued a joint statement that they had decided to “act jointly in relation to the future operation” of
Millers and reject any proposal to sell the company’s shares to Smith.

The board of directors of Millers then came up with issue of shares to Smith. Consequently, Smith
became the majority shareholder in Millers.
 CASE 1: Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821

In the Supreme Court, Street J found that (as in Teck Corporation v Millar) the directors had not
been motivated by any improper desire to retain control.

However, it was held that their manner of exercising powers to issue shares in favour of Smith was
for an improper purpose, and was regarded to be unlawful.

The Privy Council further hold that the directors’ exercise of their powers to determine the sale
price of the company’s shares could not be regarded as a proper purpose.

In the course of deliberation, the Privy Council in the above case nevertheless highlighted that
directors, within their management powers, may take a decision, and such decision may not
necessarily be in accordance with the wishes of members, and in such situation, members cannot
interfere with the directors’ powers.
 CASE 2: Tengku Dato’ Ibrahim Petra bin Tengku Indra Petra v
Petra Perdana Bhd [2018] 2 MLJ 177

The company, Petra Perdana Berhad (PPB) sued 3 formers directors in Petra Energy Berhad (PEB)
for breach their duty to act in the best interest for the company.

The action arise from the directors which sell off the controlling share that belong to PPB in PEB.

The directors was blamed for the breach of the shareholders mandate where they sell entire share
though the directors only given the mandate to sell off up to 10%.

In February 2010, some shareholder had been called for Extraordinary General Meeting (EGM) and
decided to remove the 3 directors.

The 3 directors explained that the sold off the shares in order to forbid serious cash flow problems
by PPB.

 CASE 2: Tengku Dato’ Ibrahim Petra bin Tengku Indra Petra v

Petra Perdana Bhd [2018] 2 MLJ 177

Their decision are made in meeting of the board of the director after reviewing the financial report
and proposal that had submitted by the finance manager and taking expert advise from
professional.

However the directors have act in good faith but improper purpose.

BASED ON THE 2 CASES:

The directors chose the wrong approach in order to solve the company's problems

The members can never interfere in the company management except that they can only alter
the relevant articles of association in respect of removal of the directors from his office and
replacing him with a new one which is more amenable to members
SOLUTION OF THE
DISPUTE
Presented by:
Aniisa Athirah Binti Muhammad Edrus
 FULL TRANSPARENCY
Agency problems are most prevalent when
there is a disparity in knowledge between
the agent and the principal.
It is too easy and too tempting for the agent
to exploit the knowledge gap for personal
gain.
When agent-principal relationships arise in
the business, practicing full transparency
can help close the knowledge gap and
prevent the agency problem from
emerging.
The agent should educate the principal, on
everything that is going on, rather than
leaving them in the dark while the agent
makes decisions on their behalf.
RESTRICTIONS ON AGENT'S CAPABILITY
Giving the agent too much power to act on
the principle behalf opens the door for future
challenges and can lead the financial advisor
to perhaps make poor choices.
Most successful governments practice checks
and balances because it tempers the power of
any one individual or entity, keeping
corruption to a minimum.
Principal should practice the same principles
in their business by limiting the power of the
agent.
People who have too much power believe they
are powerful and can do whatever they want.
 CONCLUSION
Agency Theory is defined as relationship between principal and agent.

Agent cannot follow their self-interest but they need to follow the principal self-interest by
maximizing the profit.

If the agent did not follow the principal, the conflict between the agent and principal will
arise that lead to agency problems and lastly agency cost.
 REFERENCES

1) https://www.researchgate.net/publication/334606179

2) https://en.wikipedia.org/wiki/R._W._Miller
3) https://themalaysianlawyer.com/wp-content/uploads/2018/08/Navigating-the-Directors-Duty-
Best-Interest-Lee-Shih.pdf
4) https://quickbooks.intuit.com/ca/resources/self-employed/conflict-of-interest-resolving-agency-
problem/
 Do you have any
questions of us?

Thank
You
Have a nice day!