3.1.1

• The principal agent problem

  The principal agent problem is an asymmetric information problem. Owners of a firm often cannot observe directly the day-to-day decisions of a management. The decisions and performance of agents are costly and difficult to monitor.
• Overcoming the principal agent problem

  What is in the best interest of the management is not necessarily the same as the optimum interests of the shareholders. Strategies involve trying to align the aims of these two different stakeholders.
• Non-profit Organisation

  Businesses that operated commercially but with social welfare and environmental aims in mind. Typically, profits are reinvested for social purpose and social aims.
• Private sector Organisation

  Private sector organisations are owned by private investors rather than the state.

  84% of jobs in the UK are in the Private Sector
• Public Sector Organisation

  Organisations that are owned and controlled by the state e.g. the NHS, the Police, State Schools.

  The NHS employs 30% of all public sector staff, with education employing 28%
• Private limited companies

  Corporations whose shares are not listed on a public exchange e.g. McLaren Technology Group, Specsavers, JCB
• Social Enterprise

  With a social enterprise, profit is reinvested for social purposes rather than for the gain of private investors. E.g. the National Trust, University student unions.
• Smaller firms and business objectives

  Business Survival

  Revenue Maximisation

  Profit Maximisation

  Cost efficiency and scale

  Customer service
• Capital gain

  An increase in the market value of a share
• Dividends

  A share of the profits made by a business