Agency theory was independently developed by Stephen Ross in economics and Barry Mitnick in institutional management during the mid-1970s. The most cited work, however, is by Michael C. Jensen and William H. Meckling (1976), who formalized the theory by defining agency costs and creating a framework for reducing conflicts of interest between principals (like owners) and agents (like managers).

Agency theory explains the relationship between a principal, who delegates authority, and an agent, who acts on the principal’s behalf. In a corporate setting, the principal is typically the employer or shareholder, while the agent is the manager or executive responsible for running the organization. A manager plays a crucial role by acting as a link between the employees and top management. Their primary responsibility is to provide leadership and guidance to a team or department, ensuring organizational goals are met through efficient planning, organizing, staffing, leading, and controlling of work. Key responsibilities of the manager include:

Setting individual employee goals

Setting individual employee goals is a core responsibility of a manager, but it should be a collaborative process. Managers work with employees to align individual goals with the company’s strategy, provide ongoing feedback, and involve them in goal setting to foster engagement and development. This approach ensures that individual targets not only support team and organizational success but also contribute to the employee’s personal and professional growth. By translating company strategy into clear, relevant, and achievable objectives, managers help employees understand their role in the broader mission and drive meaningful performance.

Delegating tasks effectively

Effectively delegating tasks is a core responsibility of a manager, crucial for optimizing time management, fostering employee development, and enhancing overall team efficiency and productivity. Good delegation goes beyond merely assigning work; it involves strategically selecting tasks, aligning them with the strengths and capabilities of the right team members, providing clear instructions and the necessary resources, and fostering an environment of trust. Additionally, it requires holding individuals accountable for their results while maintaining open lines of communication and providing ongoing support to ensure successful outcomes.

Monitoring and evaluating employee performance

Effectively monitoring and evaluating employees is a core responsibility of a manager, essential for setting clear expectations, identifying areas for improvement, and fostering continuous development and engagement within the team. This process involves setting clear goals, defining specific, measurable, achievable, relevant, and time-bound (SMART) objectives that align individual performance with organizational priorities. Continuously observing employees’ work to assess progress, behavior, and adherence to standards in real time. Maintaining accurate records of performance metrics, achievements, challenges, and behaviors to support objective evaluations. Providing continuous feedback and coaching.

Motivating and inspiring the workforce

Effectively motivating and inspiring employees is a key responsibility of a manager, as their ability to foster a positive work environment, provide clear guidance, and recognize achievements directly influences productivity, engagement, and overall organizational success. Managers can accomplish this by understanding individual employee needs, communicating a compelling vision, setting achievable goals, offering meaningful incentives and development opportunities, delivering constructive feedback, and cultivating a culture of trust and collaboration.

Making critical decisions

Making critical decisions is a central role of a manager, as managers are responsible for choosing the best courses of action to resolve issues, achieve organizational goals, and guide teams. This involves a process of identifying problems, gathering information, analysing options, selecting the best solution, implementing it, and reflecting on the outcome to ensure company growth, effective operations, and overall success. Managers make countless daily decisions, from assigning tasks to managing budgets, all of which impact the organization. Decisions on new strategies, partners, and resource allocation directly influence the company’s growth and competitiveness.

Acting as a communication bridge between employees and top management

A manager acts as a crucial communication bridge between top-level management and their team of employees, ensuring that strategies from above are translated into actionable plans for the team, and that employee feedback, concerns, and performance data are communicated back up to senior leadership. This role involves clarifying expectations, fostering transparency, advocating for team needs, and ensuring smooth communication flow to maintain understanding and alignment within the organization. Managers interpret higher-level business goals and strategies from senior management, transforming them into clear, achievable operating plans and tasks for their employees.  They communicate company policies, objectives, and changes to their team, making sure that employees understand the bigger picture and their role within it.

The principal-agent problem

In agency theory, the principal delegates authority to the agent, focusing on the potential conflicts of interest that may arise when the agent pursues their own self-interest instead of the principal’s. This situation is termed the principal-Agent Problem and is especially relevant in corporate governance, where shareholders (principals) rely on company managers (agents) to run the organization. A major issue in this relationship is passing on few wrong points which is called information asymmetry where the agent has more information about daily operations or specialized knowledge than the principal. This imbalance allows the agent to make decisions that the principal may not fully understand or control, sometimes to the detriment of the principal’s goals.

the agent holds more information than the principal, creating an imbalance of power and understanding. The outcome of such conflicts is known as Agency Loss: the reduction in the principal’s welfare due to the agent’s self-serving actions.

Key Concepts of Agency Theory:

Principal: The party that delegates authority and expects certain tasks to be performed on their behalf. Commonly, this is the shareholder or owner of the business.

Agent: The party entrusted to act on behalf of the principal, typically a company manager, whose duty is to make decisions that serve the principal’s best interests.

Principal-Agent Problem: The core conflict where the agent’s personal incentives do not align with the principal’s objectives, leading to potentially harmful decisions.

Information Asymmetry: A situation where the agent holds more information than the principal, creating an imbalance of power and understanding.

Agency Loss: The welfare reduction suffered by the principal when the agent’s decisions diverge from the principal’s best interest.

Sigmund Freud the father of psychology said that mind is landscaped. Like a landscape, mind has a structure and each structure has function of its own to play. In Freud’s model of mind the conscious mind (everything that we see and are aware of) is seen as the tip of the iceberg of our unconscious mind. Our unconscious mind is like a storehouse of our primitive wishes, ideas, and impulse which are kept at bay and mediated by the preconscious area. According to Freud the structure of the unconscious mind is like a large metal pot ‘cauldron’. So all that we desire but are scared to speak of and some events which have left lasting effect on us of which we are unable to speak because of fright are locked away in the unconscious mind. The ‘locking away’ process happens through suppression/repression. Sigmund Freud emphasized the importance of the unconscious mind; he stated that to a great extent it governs behavior of people. And, the objective of psychoanalysis is to make the unconscious conscious (aware).

In 1923, Freud developed a more structural model of the mind comprising of id, ego and superego. These are not physical areas within the brain, but rather hypothetical conceptualizations of important mental functions.

Freud said that the id expresses pleasures which comprises of two kinds of biological instincts or drives which Freud labeled as Eros and Thanatos. Eros helps the individual to survive; it expresses life-sustaining activities such as respiration, eating and sex. The energy created by the life instincts is known as libido. In contrast, Thanatos is viewed as a set of destructive forces present in all human beings such as hostility, aggression and destruction. Freud believed that Eros is stronger than Thanatos, thus enabling people to survive rather than self-destruct.

The ego develops from the id during infancy. The ego’s goal is to satisfy the demands of the id in a safe manner which is socially accepted and does not harm others.  In contrast to the id the ego follows the reality principle as it operates from both the conscious and unconscious mind.

The superego develops during early childhood when the child identifies with the same sex parent and is responsible for setting moral standards to be followed. The superego operates on the ethics and morality principle and motivates us to behave socially in a responsible and acceptable manner. The superego makes us self-governed; we feel ashamed for cheating others or harming others and feel guilty if rules are not followed by us. When there is conflict between the objectives of the id and superego the ego acts as a referee and arbitrates the conflict. The ego can thus organize various defense mechanisms to prevent it from becoming overwhelmed by anxiety.

Freud has explained that our brain guards us from disturbing thoughts and memories by holding back them and he believed that we are almost entirely driven by unconscious sexual desire. So Freud used to say that our dreams are a secret outlet for these repressed desires. Sigmund Freud used dream analysis to interpret the fundamental language of dreams; it is very different from normal conscious thinking. Freud intelligently used id, ego and super-ego to support his research on dreams.

The study of dreaming is called Oneirology; its psychoanalysis runs through neuroscience, psychology, and literature. Do you know, till today the plain fact why we dream is still unexplained. But that hasn’t stopped scientists from coming up with some pretty fascinating premise; each study has come out with variety of reasoning.

Dreaming allows wish fulfillment: After examining and analyzing dreams of hundreds of his patients, Freud came up with a presumption that dreams are wish-fulfillments. Any dream, no matter how terrifying, can be looked at as a way of getting something that you want, either literally or symbolically. If you dream of falling from height, which is the most common dream, the dream suggests that you may have lost control over a particular situation in your life. The situation can possibly be linked to job, work, and school assignment, home or even in your relationship. Falling dreams are usually vivid ones that you can recall them quite easily and are able to remember most of the symbols.

Dreaming is storing an idea in memory: Famous psychiatrist Jie Zhang said that dreams are not just randomly-generated stories caused by neural impulses. Perhaps, there are also more reasons for dreaming them. He said that our brain is always storing memories regardless of whether we are awake or asleep. Dreams are a kind of “temporary storage” area of realization, a spot where we hold memories before we move them from short-term to long-term storage. A dream flashes through our mind before it is filed in our memory.

Dream often cleanses our mind: In our dreams we get rid of undesirable connections and associations that build up in our brains throughout the day. Basically, dreams are garbage collection mechanisms, clearing our minds of useless thoughts and making way for better ones. Essentially, we dream in order to forget the bad actions and deeds. Dreams help us get rid of the information overload of daily life and retain only the most important data. Yes, that’s the truth.

Strengthening what we learn: One theory suggests that we actually dream to remember rather than forget. It’s based on a number of studies that show people remember what they’ve learned better if they dream after learning it.  It supports Jie Zhang’s theory about long-term memory storage; our dreams help us retain what we’ve learned.

Psychiatrists suggest that we should keep people awake and talk to them for hours if they have experienced a trauma. The theory is reinforced by recent studies on trauma, which suggest that when people go to sleep right after a traumatic experience, they are more likely to remember and be haunted by the trauma.

Preparation for threats: Neuroscientist Antti Revonusuo of Finland suggested that dreams play a biological function often to replicate threatening events which prepare us to face it. People who have threatening kinds of dreams are better able to face threats in their waking hours, because they’ve already run through these in their dreams. Harvard medical researcher Deirdre Barrett suggests that dreams are a kind of theatre in which we are able to solve problems more effectively than when we are awake. This happens partly because the dreaming mind makes connections more quickly than the waking mind does. This idea is based in part on experiments she did where people were asked to solve problems while “sleeping on them.” The problem-solving outcomes were better for the candidates who dreamt.

Processing painful emotions with symbolic associations: solving problems in our sleep is itself a kind of Darwinian process. Basically, dreams are natural selection for ideas and this can broaden to the level of emotions, too. One group of researchers suggests that dreams are places where we run through situations and try to select the most useful emotional reactions to them. Psychologist Richart Coutts suggests that this is the best way to react to those situations emotionally. And, we often feel better about painful issues the next morning after a night of dreams. While a Darwinian model of dreaming suggests that we aggressively transform our ideas to weed out problematic and awkward emotions, a new model of dreaming suggests that the process is more like therapy. We don’t aggressively select for the most adaptive idea or emotion, we just run through those ideas and emotions and place them in a broader psychological context. Often, the brain does this by associating an emotion with a symbol.

So friends, dreams play an important role in our emotional, psychological and physical health. We have the romantic, terrifying, emotional, funny, awkward, loving, uniting, separating and weird dreams. What we may not realize is that these dreams are common across cultures and their seemingly wacky content is both important and meaningful. We spend an average of eight hours a night sleeping, which is basically a third of our life. About a quarter of our sleep is spent dreaming, which in an average lifetime represents about six full years of dreaming. Most of the researchers conclude that dreams play a central role in our emotional health, our memory, our learning and to help us to find solutions to our problems.

In late 1950s cardiologists Meyer Friedman and R. H. Rosenman coined the term “Type A” and “Type B” personality types. Meyer and Rosenman said that Type A personalities are prone to heart disease easily because of their nature. They are very hyper and finish work on deadlines always. Comparatively type B people are laid back individuals. They have the aptitude to relax, enjoy small undertakings and they like to enjoy the small things in life. Though, they too get stressed but rarely.

In business organizations “Type A” personality will always be in demand because they are competitive, energetic, impatient, and are always under pressure to finish work in time. To a great extent type ‘A’ personalities are the most sought-for employees. However, a tremendous amount of work has been done by psychologists on the personality types and they have found that type ‘A’ is most prone to heart disease. They work overtime a great deal and rarely take vacations. They are labeled as “workaholics,” “perfectionists,” and “fastidious” people. Do you know A Type individuals are usually insecure? Their insecurity results in an alluring urge to constantly remind themselves and others of their achievements. If you walk into a type A’s office or home you will find many awards, degree and diplomas, and trophies hung on the wall or decorated in a cupboard. These are the common fixtures in their homes and offices. They are always worked up; hence they tend to be very angry individuals, they demonstrate usually cut-throat business tactics. These individuals are quite concerned about numbers, e.g. number of customers, amount of money earned, number of cars and number of homes owned by them. Because of their number game, they are always tensed up. They complain muscle cramps, dry throat, insomnia and they have more adrenalin pumping though their bodies than Type B personalities. The daily caffeine intake of Type A personalities is 50% greater than that of Type B persons. They consume more caffeine to boost their functioning ability.

On the contrast type B individuals have relaxing characteristics. They are not concerned with time or numbers or awards. They cannot work under stress. They are friendlier people. The Type B person finds it easier to express and receive affection because they are hassle free.

“A” type personalities are most suitable for leadership position. They are business owners, managers, sales people, intrapreneurs. They take charge very easily and forge ahead. They are very decisive and constant in getting what they want and need. They always are looking for a better way of working. Their entrepreneurial streak is always exhibited and they are not averse to taking risk. The type “A” personality is usually very independent and to the point. They don’t like routine and often delegate routine chores to someone else.

B” Type personalities are non-judgmental and tolerant people. They usually exhibit higher levels of satisfaction in life. They are aware of their abilities and work progressively for their goals. They enjoy their achievements. They are not too much stressed out to excel. They do get disappointed when they fall short of their goals, but they don’t get overwhelmed like “A” type. “B” type accepts failures more easily. They enjoy outings, games and contests. They participate in competitions and contests not for the sole objective of winning but for the love of the game. They are thoughtful and innovative. They allow themselves to explore and fail, if necessary. Some “B” type people are too relaxed and laid-back that they lack the drive to reach the topmost level of their careers.

A research concluded that in the most progressive country in the world, America has 50% of the individuals who fall into the Type A category, 40% into the Type B category, and 10% are undefined. More importantly, the results of a ten-year long research project on 3,500 men indicated that Type A men have at least three times as much coronary heart disease as Type B’s. The research proved that smoking cigarettes, eating foods rich in cholesterol, taking drinks and little or no exercise made very little difference in stirring the risk of heart disease, if the person has a Type B personality. This study proved that the risk associated with developing heart disease decreased by 31% when the A-B factor was eliminated. People, who can relax, take life easily as it comes, those who can enjoy company of family and friends, who travel for fun, live life for many years. The research found that people who smoked three packs of cigarettes a day for fifty years but have enjoyed life are now celebrating their 100 plus years birthdays and mind you they are Type B personalities.

Type ‘A’ people are more visible because they like to take on leadership or managerial positions and to draw attention to their work. You will see them make a fuss at an airport counter, in hotel counter, hospital anywhere. To put it plainly, type As want to spread out in the world and make their presence known. And, please don’t be under wrong impression that Type B doesn’t make it big in life. They too are achievers. They don’t make noise, they are slow but steady. Perhaps that’s the reason they are slow to anger and experience less chronic stress, https://livingwellnessmedicalcenter.com/klonopin-clonazepam/. Anxiety is associated with enhanced outcomes for just about every health complaint, from asthma to depression to Type 2 diabetes and some cancers. Please note that type “B” easily delegate when are in high pressure jobs.

Type B personalities are often more balanced in social situations; they handle sticky situations more gracefully. They are less competitive, more patient, more mutual and happier to enjoy the moment. They are certainly better people to be around with. While type As brag and try get all the credit for focusing on the goals ahead, type Bs are as skillful at achieving their objectives in the end, but they do not make big noise.

While we give so much importance to achievements it comes with a badge of “being stressed”. It’s not enough that we compete to see who can do the most, but we compete to see who can handle the most stress doing it. The only way to minimize the negative effects of stress is to diminish the stress itself by identifying the reasons of stress in your life; either eliminate them, or rethink them.