The Agency Dilemma

The agency dilemma is an interesting term from business school curriculum which I think many B School graduates conveniently forget. The agency dilemma basically refers to the problem that exists when the motives of the company's management team do not align with the motives of the shareholders. Therefore, what's good for the management team is not necessarily what is good for the shareholders.

From the mail room....
The agency dilemma can occur at all levels of the company. If rank and file employees are not motivated by their management this may often have an impact on their productivity. Another subtle way in which the agency dilemma is illustrated is through the"Yes Man" mentality. Grassroots level workers often are the closest to the customer. However, for fear of disagreeing with their management, they often follow in the wrong direction. In fact, they may demonstrate overwhelming support for their leadership's idea, even if this idea would inevitably fail. In corporate America, leadership alignment and loyalty are often rewarded more than innovation and courage. Sound familiar B-School grads---Is this you???

To the C Suite
The agency dilemma at the C Suite is frightening. Randy and I were discussing a Linked In type of product which existed only for top level executives. As we started talking, we realized that there are a lot of products created only for C Level Executives. In fact, these C Level Executives spend a lot of time developing products and services that only serve them. Is this in the company's best interest? When exorbitant pay packages and golden parachutes are market aligned, one has to wonder, "Did the C Suite create these themselves...for themselves?"
The C Suite seems pretty busy preserving their retirement wealth, creating tax loophole strategies, spending time with company accountants, and networking with each other. Are these really company value added---or C-Suite value added activities? When CEO's join a company for a short timeframe and extract significant equity from the company, is this really in the best interest of shareholders?

How can ethics be so low, with those groomed to be the future leaders of the company?

Actually, these activities make total sense. Many of these Executives were groomed as a result of being "hand-picked" very early in their careers. In corporate America, it is very difficult to be "hand-picked" by your management team if you are challenging their leadership decisions and ideas. Therefore, the "Best and Brightest" in corporate America grow up in a culture of "we take care of our own". Oftentimes, these "Preferred Status" employees believe their own hype. They drink their boss's Kool Aid---and start to believe their own propaganda. They believe that whatever is good for them, must be good for the company....or at least they rationalize this theory. So the agency dilemma strikes at the Core of our Corporate Infrastructure.

The Agency Dilemma in 2010 - The Rules of Corporate America

Individual Contributor
1. If I agree with my boss, I will get ahead
2. If I disagree with my boss, I will not get ahead

Grassroots Level Manager
1. If I hire loyal people, I will get ahead
2. If I fire those who challenge me, I will get ahead.
3. If I follow the lessons I learned as an individual contributor, I will get ahead.

Director Level Manager
1. If I create my "kingdom" of resources, I will get ahead.
2. If I build alliances external to the company, I will get ahead
3. If I take care of the Loyal Followers, I will get ahead.
4. If I follow the lessons I learned as an individual contributor and grassroots manager, I will get ahead.

VP Level Manager
1. If I bring in my own people, I will get ahead.
2. If I create my own hype, I will get ahead.....aka "Values of my organization"
3. If I follow the lessons I learned as an individual contributor, grassroots manager, and director, I will get ahead.

C-Suite Executive
1. If I use my position to extract maximum value from the company for my own personal gain, I will get ahead. "Empire Building"
2. If I believe that the company benefits when I benefit, I will get ahead.
3. If I "take care of my own", I will get ahead.
4. Since I am the Boss, everyone needs to agree with me and exhibit blind loyalty, or they will not get ahead.