Introduction

Defination of terms

Two research questions

Body

Conclusion

The interest of the managers and shareholders should be aligned.Using relevant examples from Zim
financial sector,to what extent and using which methods,can the interest of shareholders and
managers be aligned? 100 marks
Stockholders' Goals

In general, stockholders have one chief goal: increasing the value of the company. This goal can
manifest itself in a variety of measures, such as stock price, profitability or market share. Individual
stockholders don't set goals, however; they are ultimately set by the directors chosen by the
stockholders. If you are a majority shareholder in your company, you can dictate these goals, but
otherwise your influence is equal to your share of ownership.

Managers' Goals

Managers will have specific goals set for them, such as sales levels, customer satisfaction or
increased market share. Additionally, managers will have their own personal goals. These may
include financial goals, career goals or simply ego-based goals. The goals that are set for the
manager may or may not be in line with the manager's personal goals.

Principal-Agent Problem

The principal-agent problem can occur when a principal hires an agent on his behalf. When
stockholders hire managers, they expect them to act as agents for them, attempting to meet the
stockholders' goals. Adding to this is the fact that stockholders cannot directly supervise their
managers, creating information asymmetry where the stockholders don't know exactly what the
manager is doing or if it is in line with their goals. For example, a manager may meet his own goals
by awarding a contract to a company that he owns an interest in, instead of the most qualified
company.

Aligning Goals

Stockholders should take care to align their own goals with the goals of their managers. One of the
simplest ways to do this is to pay managers partially in stock, making them stockholders themselves
who have an interest in seeing the company succeed. Alternatively, stockholders can set specific
goals and provide bonuses for meeting the goals. Additionally, stockholders can monitor the
managers more closely, for example hiring outside consultants to evaluate the work performed by
managers.