Throughout my history as a consultant and executive in multinational companies, I had the chance to see many things and understand a bit of the complexity of relationships between heads and agents.
In this context, there is what we call Agency Theory, a central concept in management and finance studies that offers an interesting perspective for understanding these relationships, highlighting the challenges and conflicts that arise when an agent is tasked with acting in the interest of a head (principal).
Over time, I clearly saw how executives (agents) and shareholders (principals) can have misaligned interests. I witnessed firsthand the nuances of these relationships, the gray way of handling matters that should be black or white, where many executives may make decisions aimed at personal gain at the expense of shareholders and the company. This dynamic is not exclusive to large corporations; in smaller companies, the challenges of agency theory are equally noticeable, though with some different peculiarities.
In small and medium-sized companies, the line between executives and partners often blurs, since in many cases they are the same person. This overlap of roles can lead to a confused alignment of responsibilities, where business decisions are influenced by both the executive's vision and the partner's interest. This duality can complicate the alignment of objectives and obscure clarity in decision-making, creating fertile ground for conflicts of interest and decisions that may not be in the best interest of the company as a whole.
When facing these challenges in companies of different sizes, I realized that what helps resolve this issue is transparency. We know that promoting open and honest communication among all parties involved is essential. But does this truly happen in most professional environments?
In large corporations, the implementation of clear policies and incentive mechanisms that align the interests of executives with those of shareholders undoubtedly helps minimize conflicts. In smaller companies, establishing clear boundaries and defined responsibilities between the roles of partner and executive is crucial to avoid mixing personal decisions with business ones. But partners and executives are not always prepared to have that conversation.
Another strategy I find quite effective is the implementation of robust corporate governance systems, even in small companies, to ensure adequate oversight of decisions made. Setting clear goals, accompanied by a system of rewards and penalties, can encourage behavior aligned with the company's best interests. And by achieving this alignment properly, there are no significant costs, and the result is a company more qualified in its processes, with more aligned managers and executives, and a governance structure that only contributes to making the company more valuable and more recognized.
Do not underestimate this subject. Do not assume it does not apply to you, or that it has nothing to do with your company. That mindset may be the reason many good things are not happening in your work environment. If you need help, ask for it.
Article also published on LinkedIn.
