I have experienced a difference in risk aversion as a dispute that arose out of agency
theory. While working for a “boutique” financial planning firm geared toward serving
primarily high net worth individuals, there could be conflict at times when balancing the
client’s level of risk tolerance. b The firm was compensated based on a fee-only
arrangement, not accepting commissions as a form of compensation. While this was an
objective way of earning compensation, it also could present an agency conflict. Since
the firm earned revenue based on assets under management, it was imperative those assets
grew over time in order to raise or grow the firm’s revenue each successive year. And
this could mean taking on more risk to earn a higher return on assets. This higher risk
may not be commiserate with the level of risk desired by the clients. So, and agency
conflict was the result.
Additionally, I have experienced strong corporate governance with respect to stakeholder
theory while working for a construction company. Internal stakeholders (owners,
managers, employees) were duly rewarded with year-end bonuses if key financial metrics
and deliverables were met with success. Suppliers paid in a timely manner and customers
(both external stakeholders) being serviced on time and in good fashion were goals met
by the company and resulted in a win-win for both internal and external stakeholders.
When a business facilitates an environment of corporate governance, many positive
benefits can be the result or outcome. By the company executives, Board of Directors,
and other internal officials creating a set of rules and controls, providing guidance to
leadership with a written set of corporate principles, the interests of shareholders,
directors, management, and employees are aligned. This set of corporate governance
guidelines can also provide a clear pathway of a company’s direction and business
integrity. However, a written set of corporate principles is only the beginning. True
success in corporate governance is predicated on a company’s directors, executive team,
and key management to act in accordance with the stated principles. The ”tone at the
top” will flow down and through the organization in large part. Thus, ethical behavior
starting at the top of the organization should also be reflected in each layer of the business
entity – from the custodian to the CEO. A positive environment based on sound
principles will create a strong ethical climate.
Reference:
Chen, James (2022). What Is Corporate Governance? Investopedia.
https://www.investopedia.com/terms/c/corporategovernance.asp b
Mintz, Steven M. & Morris, Roselyn. (2020). Ethical Obligations and Decision Making
in Accounting (5th Edition). McGraw-Hill Education US. https://prod.reader-
ui.prod.mheducation.com/epub/sn_7567e/data-uuid-165aaab94b94470e809d751a40bbf1e3
