a. Agency conflicts are differences in the interests of a company’s owners and the managers.

These conflicts arise in several ways, including:

1. Moral Hazard: Managers may seek benefits from their position, such as perks like company cars, private accommodation, and lunches. These can add costs without enhancing shareholder value.
2. Effort Level: Managers might work less hard than if they were owners, potentially resulting in lower profits and share price. This issue is relevant at both middle and senior management levels, especially where incentive structures differ.
3. Earnings Retention: Directors’ and senior managers’ remuneration often relates to company size rather than profits. This incentivizes managers to grow company assets and turnover, possibly by reinvesting profits rather than paying dividends.
4. Risk Aversion: Executive managers often prioritize company stability to secure their income and job, leading to a preference for lower-risk projects, whereas shareholders may desire higher risks with potential for greater returns.
5. Time Horizon: Shareholders typically have long-term interests in share value, while managers might focus on short-term gains, especially if they receive annual bonuses based on performance or do not expect a long tenure in the company​

b. Methods to reduce agency conflicts include:

1. Assessing Stakeholders’ Interests: Weighing stakeholders’ interests can help balance future strategy with broader stakeholder needs.
2. Agency Theory Resolution Strategy: Analyzing issues from ownership-control separation and negotiating contracts that align manager (agent) actions with owners’ (principal) interests.
3. Firm Induced Strategies: Employers may use strategies like profit-related pay, share awards, and share options to align manager and company objectives.
4. Separation of Roles: Separating powers, such as between Chairman and CEO, reduces risk of single-individual dominance and enhances accountability.
5. Corporate Governance: Establishing governance frameworks helps address ownership-management issues, such as shareholder rights, board responsibilities, and transparency.
6. Threat of Dismissal: Although difficult in widely held companies, institutional investors can weaken director dominance and promote accountability.
7. Exposure to Takeover Bid: Managers are deterred from suppressing share value as undervaluation might attract hostile takeovers, risking their positions​