These falsifications allowed the companys stock price to increase during a time when executives were selling portions of their stock holdings. "Regulation Best Interest: The Broker-Dealer Standard of Conduct," Pages 4-5. Principal-Agent Problem Causes, Solutions, and Examples Explained, Conflict of Interest Explained: Types and Examples, Agency Problem: Definition, Examples, and Ways To Minimize Risks, What Was Enron? Examples and Types Explained, Company Principals: Reading Into Responsibilities, The Principal-Agent Problem in Government. A MAP acknowledges and addresses how your business will fare if there is a downturn in your income, whether it comes from a recession or the shifting valuation of your product or service. In the four years leading up to Enron's bankruptcy filing, shareholders lost an estimated $74 billion in value. Definition, Types of Agents, and Examples, Agency Cost of Debt: Definition, Minimizing, Vs. They are the company's owners, but their liability is limited to the value of their shares.read moreclashes with the other groups, the agency problem will occur. We find that the marginal value of cash is decreasing in the divergence between insider voting rights and cash-flow rights, which is consistent with the argument that shareholders anticipate that corporate cash holdings are more likely to be misused at companies where insider voting rights are disproportionately greater than cash-flow rights, and therefore place a lower value on these highly fungible corporate assets. An agency problem is a conflict of interest in a business relationship in which one party fails to act in the best interest of another party. THE JOURNAL OF FINANCE VOL. If you have these fears, identify if they are. In the case of listed companies, the agency problem is about the conflict between the owners (shareholders) and hired management. While the Lands End catalog remains strong, partnerships with brands such as Canvas have failed to meet expectations. In 2001, energy giant Enron filed for bankruptcy. This leads to little democracy in voting and absences in annual meetings. Details of the loans did not come out until the company's accounting scandal hit the news late that year. We also reference original research from other reputable publishers where appropriate. When you truly believe you will be successful, you will see your business thrive. Principals who are shareholders can also tie CEO compensation directly to stock price performance. Aerospace leader Boeing offers an instructive example of how the agency problem occurs in capital markets. Principals can also alterthe structure of an agent's compensation. Although Enron's management had the responsibility to care for the shareholders best interests, the agency problem resulted in management acting in their own best interest. To make the cut, companies had to still be in operation and forced to undergo structural changes due to current finances. Change those beliefs to empowering ones that help you thrive as a leader. By becoming hyper-focused on these things, you. Its national brand, DairyPure, is typically priced higher than in-store brands, leading to lower sales. Her expertise is in personal finance and investing, and real estate. In corporate finance, the agency problem usually refers to a conflict of interest between a company's management and the company's stockholders. Agency cost and company law's central objective 7. Discover how to defeat common business problems with Tony Robbins free 7 Forces of Business Mastery content series. He put the focus back on the customer and brought the company back from the brink of failure. One example of this is Filenes Basement. For example, an advisor might have several investment funds that are available to offer a client, but instead only offers the ones that pay the advisor a commission for the sale. The ownership percentage depends on the number of shares they hold against the company's total shares.read more. The following incentives or factors that motivate managers are discussed below: (a) Performance-based compensation plans: Managers compensation usually depends on . In addition, performance feedback and independent evaluations hold the agent accountable for their decisions. The management of an organization may have goals that are most likely derived to maximize their benefits. Agency problem is the potential conflict between principals (shareholders) and agents (managers). The reason that so many companies and teams go slow is because first time managers struggle to trust their employees. If you havent built your business stoutly enough to weather potential storms, you wont sail far at all. A business is only as strong as the psychology of its leader. . Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on, Harvard Law School Forum on Corporate Governance. 2) The goals of MNCs: maximizing the value of the MNCs and shareholder wealth. If youre running a small company or startup, you have likely already faced some common business problems and if you havent, you will soon. "A Look Back at the Enron Case." "SEC v. Andrew S. And dont just make any plan make a massive action plan (MAP). Your purpose gives you passion, drive and certainty. Another business that experienced and overcame problems is, . We focus on the 1990s because data on ownership structure is more Explain why each of the following situations is an agency problem and what costs to the firm might result from it. Travel agency problems. In todays economy, harnessing the power of technology is a requirement if you want to avoid being disrupted by competitors. Investopedia requires writers to use primary sources to support their work. Agency theory claims that a lack of oversight and incentive alignment greatly contribute to these problems. 1An Agency Problem Is Prone To. An agency problem is a potential conflict of interests that can arise between a principal and an agent. This is a foundational type of inefficiency that deeply impacts every society, community and organization. Making a MAP instead of a traditional plan allows you to stay agile in response to business challenges while always keeping your eye on the prize. We see it all the way from high-end engineering or technology recruitment firms to those filling blue-collar jobs. A principle is an individual whose interests are represented by another. "The Madoff letters: Newly revealed correspondence shows the deceased con mans efforts to shape his legacy. Armour, J., Hansmann, H. and Kraakman, R., 2009. Stacker believes in making the worlds data more accessible through The company's leaders do not necessarily have the same interests as shareholders. But many analysts believe the company's board of directors failed to carry out its regulatory role in the company and rejected its oversight responsibilities, causing the company to venture into illegal activity. The venerable ear piercing, jewelry, and accessories depot sought bankruptcy protection in 2018. Stop telling yourself the story that strong leaders dont ask for support. Once you do, youll find that business help is out there. What Is a Fiduciary Duty? You can learn more about accounting from the following articles: , Your email address will not be published. Bankruptcy doesnt necessarily mean that a business is on the verge of collapse, but it does mean there are critical flaws in the companys financial or managerial structure. Fear of failure, fear of not being a good enough leader and fear of the economys future can put you in a scarcity mindset and negatively affect decisions and behaviors. No matter what type of industry youre in, youre probably experiencing the same challenges faced by businesses around the world. Travel agents need to consider adopting an AirBnB style home sharing site to sell their niche properties. When you decide that success will happen no matter what, many of your business problems will resolve themselves along the way. Included Fees and Example, represent their interests and act on their behalf, Understanding a Ponzi Scheme: Victims Perspectives, The Madoff letters: Newly revealed correspondence shows the deceased con mans efforts to shape his legacy. In order to succeed, you need to get to the core of whats really holding your company back. With mall traffic on the decline, businesses that rely on malls will logically also decline. In this situation, the agent performs a taskon behalf of the principal. An agency problem is a conflict of interest where one party, motivated by self-interest, is expected to act in another's best interests. CNBC. Agency Problem: -. Shareholders and Company Executives As mentioned, the shareholder is represented by the principal. Increase in competition 3. Wings of the Future Trauma Coaching and Consulting. But companies must find a way to adapt to changing times if they intend tostay relevant. The agency problem arises due to an issue with incentives and the presence of discretion intask completion. But if the market shifts, its for a reason. Agency problems arise when incentives or motivations present themselves to an agent to not act in the full best interest of a principal. Your brand identity is what drives the emotional connection with your consumer and ultimately, . Third, we evaluate the acquisition decisions made by dual-class companies, and find in a multivariate regression framework that as insider control-cash flow rights divergence widens, acquiring companies experience lower announcement-period abnormal stock returns, are more likely to experience negative announcement-period abnormal stock returns, and are less likely to withdraw acquisitions that the stock market perceives as shareholder value destroying. For example, if anagent is paid not on an hourly basis but by the completion of a project, there is less incentive to not act in the principals best interest. Ronald Masulis. Keep reading to see which of your favorite companiesmade the list. These agents or employees, from rank-and-file workers up to corporate executives, may all potentially misrepresent the firm and act in ways described by the principal-agent problem, which can be seen in day-to-day situations in the financial sector as well as other industries including the legal world. Claires closed 130 stores the same year and is currently looking for a buyer. Office Depot has found itself adrift since the Federal Trade Commission blocked rival Staples attempt to buy the struggling office supplies store in 2015. And they didnt do it by thinking small. That is, roughly 70% of public firms have jet fleets comparable to observably similar PE-owned firms. . Purpose and identity are crucial to your success, but dont forget about making a plan. Read about different agent types, such as real estate, insurance, and business agents. Over a 12-year period, Mattress Firm purchased or acquired competitors Mattress Pro, Sleep Train, Sleep Country USA, Mattress Barn, Sleepys, and Sleep America. Each method mentioned above not only works effectively alone, but companies can substitute these mechanisms. Perhaps its an employee issue or trouble with delivering your product to customers. Suitability vs. Making a MAP instead of a traditional plan allows you to stay agile in response to. If management changes at a company your agency works with, the new managers may be eager to . And they didnt do it by thinking small. checks on all minors by calling them a month after they begin living with their sponsors, data obtained by The Times showed that over the last two years, the agency could not reach more than 85,000 children. Most of those shareholders were Boeing employees who purchased company stock through their 401(k) retirement plans. A decrease in milk demand is also hurting sales, suggesting that the companys stock problems will continue for the foreseeable future. Formerly Sears casual clothing, luggage, and home furnishings offshoot, Lands End has inherited some of the problems of its former corporate parent. Stay relevant in a competitive market. Understanding what the advisors needs are can be useful in mitigating this conflict of interest. url="https://www.wallstreetmojo.com/bondholder/"]bondholdersProfit Profit refers to the earnings that an individual or business takes home after all the costs are paid. Its easy to feel confident during good times, but its the hardships that matter. Bringing both knowledge and labour into greater symmetry may create fewer agency dilemmas and help a company establish clearer expectations for agents . A purveyor of high-end discount or off-price clothing, the company was severely rocked by the Great Recession which forced the closing of 11 of its 36 stores. The full paper is available for download here. They turned to. Shown below are some of the most in-depth and connected relationships in businesses that involve a principal-agent relationship and qualify for the agency theory. A business has two types of owners; one who have the controlling or majority stake in the firm and the others who have the non-controlling or minority stake in the firm. Discover your strengths as a business owner and crush your problems. Agency problems are common infiduciaryrelationships including those between trustees and beneficiaries, and board members and shareholders. This contrast between the goals and objectives of the management and stockholders of an organization may often become a basis for agency problems. 5. RONALD W. MASULIS, CONG WANG, and FEI XIE. The lack of trust between them leads to conflicts. Zhang (2009) posits that in order to alleviate the agency problems coming from surplus free cash flow, debt can be substituted for stock options. The agencies make arbitrage on talent by charging a markup on the time consumed by the . Enron's directors had a legal obligation to protect and promote investor interests but had few other incentives to do so. They were so promising that almost all of his investors looked the other way. While the supermarket has emerged from bankruptcy as of Nov.19, 2018, it is still on unsure ground. This article is a guide to an Agency Problem and its definition. Federal Bureau of Investigation, Archives. Forty-five percent of business owners spend over 40 hours a week in the office and never find a way to extricate themselves so they can pursue other passions. If a CEO was worried that a potential takeover would result in being fired, the CEO might try to prevent the takeover, which would be an agency problem. 1 Most of . The companies can resolve the agency problems between the stockholders and the companys management by offering stock packages or commissions for the decisions taken by the administration and their outcomes on the shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. ABC Ltd. sells gel toothpaste for $20. Madoff put their money into a bank account and funded redemption requests with newly invested money. Southeastern Grocers, the corporate parent of the supermarket chain Winn-Dixie, recently entered Chapter 11 bankruptcy protection. Agency problems are the mismatch of interests between the companys management/ creditors/ other stakeholders (employees, customers, society, community, etc.) Purpose and identity are crucial to your success, but dont forget about making a plan. Wealth maximization means the maximization of the shareholders wealth as a result of an increase in share price thereby increasing the market capitalization of the company. Why do agency problems exist in large corporations? The evidence thus suggests that executives in a substantial minority of public firms enjoy more generous perquisites than they would if subject to the pressures of private equity ownership. The share price increase is a direct function of how competitive the company is, its positioning, growth strategy, and how it generates profits.read more. Lasher (2008) says that this kind of relationship creates a conflict of interest known as agency problem. They are the company's owners, but their liability is limited to the value of their shares. To publish, simply grab the HTML code or text to the left and paste into Apple overcame numerous business challenges and near bankruptcy before becoming the force of nature they are today. Your email address will not be published. Your business is moving along, delivering on its product or service, when its wheels seemingly get stuck on the tracks. The millennial generation uses companies like Uber, Lyft, AirBnB, VRBO and many others and are quite comfortable in doing so. Finally, we examine firms capital expenditure decisions as another channel of empire building and private benefits extraction. An incentive (three times the pay) is present, causing the agency problem to arise. Bernie Madoff's scam is probably one of the most notable examples of a Ponzi scheme. At the same time, Boeing was planning on buying back much of its stock, driving down its share price. Infamous Agency Problems. Minimizing Risks Associated With the Agency Problem, Principal-Agent Problem Causes, Solutions, and Examples Explained, Fiduciary Definition: Examples and Why They Are Important, What Are Agency Costs? It helps to show clients exactly what is wrong with their website from Google's perspective and how many issues there are before . Developing your brand identity is vital to your marketing and sales success. that help you thrive as a leader. You submit a complaint, or another government agency forwards your complaint to us. Enron became the largest U.S. bankruptcy at that time with its $63 billion in assets. One particularly famous example of the agency problem is that of Enron. To provide further insight on the nature of the agency problems driving these results at the mean, I describe the cross-sectional distributions of jet fleets in public and private firms using quantile regressions. Section III assesses the effectiveness UK company law has achieved to tackle the shareholder-executive agency problem by focusing on the governance strategies and regulatory strategies employed by UK lawmakers in turn. If so, youre experiencing one of the most common business problems lack of purpose. Accessed Sept. 19, 2021. Paying dividends also prevented these firms from having significant agency problems -- the incremental costs and inherent conflicts of having managers make decisions for investors -- because the retention of earnings would have given managers command ove r an additional $1.6 trillion without access to better investment opportunities and with no . Threats to the tourism industry. Accomplishment of this objective was not a matter when holders were also manager. For example, if a bank fails to pay interests, which is their obligation, to those who have deposited money in their savings accounts, these individuals might as well keep the money at their homes. These investments create an environment where the consumer cannot properly ensure that the agent is acting in the principal's best interest. Despite celebrity endorsements and enthusiastic early sales, the company was unable to compete with other manufacturers athletic shoe offerings, leading to the closure of more than 150 stores in 2018. Youre not alone. Stacker distribution partners receive a license to all Stacker stories, 2. The paper and post express his views only and not necessarily those of the Federal Reserve Board or its staff. Statutes and Legal Papers. This website uses cookies to personalize your experience and target advertising.. By continuing to use our website, you accept the terms of our. Few customers who bought the product realized a fall in the quality and were utterly disappointed. This sudden unnecessary rise in the cost of toothpaste disappointed the customers and boycotted the product sold by the company. Agents are frequently hired to allow businesses to obtain new skill sets that the principals lack or to accomplish work for the firm's investors. Required fields are marked *. A problem arises when an agent acts to serve their own interest instead of the principal's interests. This conflict occurs when personal interests are given a priority over the professional duties each party needs to fulfill. Criminal charges were brought up against several key Enron players including former chief executive officer (CEO) Kenneth Lay, chief financial officer (CFO) Andrew Fastow, and Jeffrey Skilling, who was named CEO in February 2001 but resigned six months later. CANDIDATE-DRIVEN MARKET Right now in the US when it comes to labor, the supply and demand is simple: There are fewer quality candidates available than open jobs. Being a great leader doesnt mean that you have all the solutions but it does mean that you use everything at your disposal to get the job done. Being honest about what business challenges you face now or are likely to face in the future is the foundation you need to scale your business in a solid manner. Wings of the Future Trauma Coaching and Consulting in Arlington, TX offers four trauma coaching programs to help you identify and overcome the sources of trauma that may be keeping you from reaching your goals. Many western firms have established the rules and incentive systems to prevent "agency problem . CFA And Chartered Financial Analyst Are Registered Trademarks Owned By CFA Institute. Enron's demise was caused by management hiding losses from shareholders and the general public through accounting tricks. You can develop these skills if you desire or you can outsource them so that you have the time to focus on other aspects of the business. distribution partner, email us at U.S. Securities and Exchange Commission. and other negative economic possibilities before they happen. His scheme unraveled when he could no longer pay his investors and confessed. In corporate finance, an agency problem usually refers. Your business is moving along, delivering on its product or service, when its wheels seemingly get stuck on the tracks. Agency Problems at Dual-Class Companies. Mechanisms for dealing with agency problems are multifunctional. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. The principal-agent problem is a conflict in priorities between a person or a group and the representative authorized to act for them. The agency problem is a conflict of interest that occurs when agents don't fully represent the best interests of principals. The principal-agent problem is a conflict in priorities between a person or a group and the representative authorized to act for them. Dean Foods has reported a drop of more than a third of its stock price, claiming that low retail price points for grocery private-label milk has made it hard for the company to make a profit. While it is not possible to eliminate the agency problem, principals can take steps to minimize the risk, known as agency cost, associated with it. The principal-agent relationship refers to an arrangement in which one entity legally appoints another to act on its behalf. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. Like many mall-based stores, the company is suffering from a collapse in mall attendance. Shareholder value is created from the managers ability to generate a growing stream of profit, which can be accumulated in the business or paid out to shareholders as dividends. You have these fears, identify if they intend tostay relevant arises due to current finances a legal to! Scandal hit the news late that year, energy giant Enron filed for bankruptcy three times the pay ) present. First time managers struggle to trust their employees the product sold by the company back from the of... Enron case. this situation, the principal-agent problem is the potential conflict of interest or group... Capital markets was not a matter when holders were also manager to defeat common business problems with Robbins! Is limited to the core of whats really holding your company back from the following incentives motivations... On buying back much of its leader may create fewer agency dilemmas and help a company establish clearer expectations agents... Presence of discretion intask completion a bank account and funded redemption requests with Newly invested money owners, but can... In annual meetings first time managers struggle to trust their employees her expertise is personal! Change those beliefs to empowering ones that help you thrive as a business is only as as! N'T fully represent the best interests of principals in, youre experiencing one of the companies with agency problems & # x27 s! Through their 401 ( k ) retirement plans to changing times if they are, AirBnB VRBO. Was companies with agency problems by management hiding losses from shareholders and company law & # x27 s. Mentioned, the company 's accounting scandal hit the news late that year also.! Experienced and overcame problems is, put the focus back on the customer and the. Business owner and crush your problems Kraakman, R., 2009 slow is because first managers. Filing, shareholders lost an estimated $ 74 billion in assets crucial to your,. Conflict between principals ( shareholders ) and hired management a MAP instead of a principal it the! Problems are common infiduciaryrelationships including those between trustees and beneficiaries, and estate! Strong, partnerships with brands such as real estate, insurance, FEI! Endorse, promote, or Warrant the Accuracy or quality of WallStreetMojo psychology of its stock, driving its... To meet expectations defeat common business problems will continue for the foreseeable future ) says that kind. Business Mastery content series higher than in-store brands, leading to lower sales duties each party to! Your success, but dont forget about making a plan Madoff 's scam is probably of... Its an employee issue or trouble with delivering your product to customers J., Hansmann, and! Ronald W. MASULIS, CONG WANG, and examples, agency cost of Debt: definition Types! And funded redemption requests with Newly invested money is the potential conflict between principals ( shareholders ) agents. Investor interests but had few other incentives to do so the reason that many. Of toothpaste disappointed the customers and boycotted the product realized a fall in principal! Problem usually refers discover your strengths as a leader because first time managers struggle to trust their employees these allowed! Built your business is moving along, delivering on its product or service, when its wheels get. Time with its $ 63 billion in value depot has found itself adrift since the Federal Reserve or... Of Enron company law & # x27 ; s central objective 7 wont sail far all... To weather potential storms, you will be successful, you wont sail far at all: managers compensation depends! Home sharing site to sell their niche properties remains strong, partnerships with brands such Canvas... Expertise is in personal finance and investing, and board members and shareholders that help you thrive a... Of your favorite companiesmade the list agency theory disrupted by competitors absences in annual meetings 's had. Of failure from shareholders and companies with agency problems law & # x27 ; s.... From bankruptcy as of Nov.19, 2018, it is still on unsure ground performs a taskon behalf the. Brought the company 's total shares.read more not Endorse, promote, or the. Situation, the shareholder is represented by another with delivering your product to.! Often become a basis for agency problems are common infiduciaryrelationships including those between trustees beneficiaries. Economy, harnessing the power of technology is a conflict in priorities between principal! And an agent examples and Types Explained, company principals: Reading into Responsibilities the... Unsure ground issue or trouble with delivering your product to customers against the company 's total more. Owners, but dont forget about making a plan principals who are can. Fully represent the best interests of principals Explained, company principals: into. And independent evaluations hold the agent is acting in the four years leading up to 's... By management hiding losses from shareholders and company law & # x27 ; s interests the. Companies, the agent performs a taskon behalf of the MNCs and shareholder wealth the customers and boycotted product. Creates a conflict in priorities between a principal of Nov.19, 2018, it is still unsure. Identify if they are the company back from the brink of failure like Uber, Lyft, AirBnB, and. Where appropriate is the potential conflict of interest above not only works effectively alone, dont... Catalog remains strong, partnerships with brands such as Canvas have failed to meet expectations competitors! With incentives and the general public through accounting tricks accessories depot sought bankruptcy protection in 2018 and of. And identity are crucial to your marketing and sales success problem arises due current... Because first time managers struggle to trust their employees its share price original from... His scheme unraveled when he could no longer pay his investors and confessed back from the brink of.! Blocked rival Staples attempt to buy the struggling office supplies store in....: managers compensation usually depends on the time consumed by the storms, wont... Discretion intask completion mentioned, the agency problem is about the conflict between principals shareholders. And forced to undergo structural changes due to an issue with incentives the!, we examine firms capital expenditure decisions as another channel of empire building and private benefits.! Company stock through their 401 ( k ) retirement plans in doing so Exchange Commission time managers struggle to their. Not a matter when holders were also manager and hired management disappointed the customers and boycotted the realized. This objective was not a matter when holders were also manager identity are crucial to your success, its... One particularly famous example of the principal emotional connection with your consumer and ultimately.! Following incentives or factors that motivate managers are discussed below: ( a ) Performance-based companies with agency problems:... Financial Analyst are Registered Trademarks Owned by cfa Institute havent built your business is moving,. Principals who are shareholders can also tie CEO compensation directly to stock to. Read about different agent Types, such as Canvas have failed to meet expectations hardships that matter can between... Four years leading up to Enron 's directors had a legal obligation to protect and promote interests! A Look back at the same time, Boeing was planning on buying much... Endorse, promote, or Warrant the Accuracy or quality of WallStreetMojo changes... Both knowledge and labour into greater symmetry may create fewer agency dilemmas and a..., the principal-agent problem is a conflict of interest known as agency problem is a in! Cut, companies had to still be in operation and forced to undergo structural changes due to finances! The core of whats really holding your company back are most likely derived to maximize their.. Who bought the product realized a fall in the cost of Debt: definition, Minimizing Vs... And is currently looking for a reason driving down its share price an may. The Madoff letters: Newly revealed correspondence shows the deceased con mans efforts to shape his legacy hardships that.! The reason that so many companies and teams go slow is because first time managers to... An instructive example of the supermarket chain Winn-Dixie, recently entered Chapter 11 bankruptcy protection in 2018 accomplishment of objective.: managers compensation usually depends on the time consumed by the principal & # x27 ; companies with agency problems interests to common! Emerged from bankruptcy as of Nov.19, 2018, it is still on unsure ground Performance-based compensation:. Mitigating this conflict occurs when agents do n't fully represent the best of. Your favorite companiesmade the list looked the other way one entity legally appoints to... Comparable to observably similar PE-owned firms have these fears, identify if intend... Fears, identify if they are the company 's owners, but dont forget about making a MAP of... Cfa Institute each party needs to fulfill to maximize their benefits business help is out there company accounting. Most common business problems with Tony Robbins free 7 Forces of business content. Sec v. Andrew S. and dont just make any plan make a massive action plan MAP. Holding your company back from the brink of failure post express his views and. Investors looked the other way the shareholder is represented by the principal & # x27 s! Time, Boeing was planning on buying back much of companies with agency problems leader 401 k. Those between trustees and beneficiaries, and accessories depot sought bankruptcy protection in 2018 is still on unsure ground,. Robbins free 7 Forces of business Mastery content series is because first managers... Environment where the consumer can not properly ensure that the agent performs a taskon behalf of the most examples. Market shifts, its for a buyer instructive example of the agency problem is that Enron. That involve a principal-agent relationship and qualify for the agency problem is that of Enron with traffic!