Agency Theory

This theory actually caters with the problems arising among principle and agents. This theory looks at the conflicts arising among principles and agents. Principle and agent; these two factors make an agency in which one is acting on behalf of other or representing the other.

In a company principle agent relationship exists between Shareholders (Principles) and management (Agents). Shareholders are the owners of the company who invest their capital. They directly or indirectly hire management to run the affairs of the business. They expect them to carry out the business in favor of shareholders and generate maximum profits. So management have obligation to run all affairs of the company using their knowledge, skills and abilities and honestly. Managers are custodian of shareholders’ interest.

But sometimes there may be a situation when interests of shareholders and agents differ. And this variance in interest creates problems. This is called Agency Problem. Shareholders may suffer because of certain decisions of the management which are in favor of managers. Managers are majorly concerned about their monetary benefits, rank, position and rooting in the company so they may hide some material facts which are the consequence in guarding their own interests. For example, CEO may want to increase its managerial empire and personal stature and use funds to finance unrelated diversification.
This could reduce shareholders’ value.

Agency theory deals with these problems and tries to provide best possible way to eliminate it. But in efforts to eliminate these problems, certain cost of the principle is inflicted or expenses incurred in order to sustain an effective agency relationship; this is called as agency cost. Following are the costs of shareholder-management conflict:

• expenditures to monitor managerial activities, such as audit costs;

• expenditures to structure the organization in a way that will limit undesirable managerial behavior, such as appointing outside members to the board of directors or restructuring the company's business units and management hierarchy;

• Opportunity costs which are incurred when shareholder-imposed restrictions, such as requirements for shareholder votes on specific issues, limit the ability of managers to take actions that advance shareholder wealth.

Following are the ways to reduce the agency costs:

• Incentive schemes for managers to reward them financially for maximizing owners’ interest
– e.g. shares at reduced price, thus aligning financial interests of executives with those of share holders
• direct intervention by shareholders
• the threat of firing
• the threat of firing

Emerging Business Schools in Lahore

Business Studies are getting more and more popular in Pakistan and some students are preferring Business studies over medical even. An very clear prove of this change is higher merit of business schools both in public and private sector. Over the years LUMS maintained his number one position in business schools not only in Lahore and Punjab but now it has become Pakistan's Top Business School. Some years back LSE joined LUMS in higher ranks of business schools.

But now there are some new business schools which are about to show their magic in business studies as well. Some big names like brand names are now started their own business school and got great response from students and market as well, well so far. I'm gonna give some information about those four emerging business schools of Lahore in this post.

FAST Business School:         National University of Computer and Emerging Sceinces started its Business School five years ago with the basic aim of supporting its Computer Sceince department with some degrees like BBIT and MBIT. But as the studies started it changes its dimensions and now they are fully providing pure business studies and no doubt there standard is high.

In FAST students' life are so much busy in projects, quizes, assignments, presentations and exams. So they are grooming their students for strong market competition. Also their labs, library is very well equipped with helpful staff. Faculty is qualified and know the profession of teaching pretty well and doing a great job. Read more here.

Management Studies Department, GCU:         Government College University has established is Management Studies Department and by using the name of GCU they got attention of students and got great response in the form of applications which eventually gave them liberty to chose intelligent students out of those applicants after a strict entry test and interview.

MBA at GCU got special attention by students because of its offering of a 6 month semester in Malaysia after two years in Pakistan. As they have highly qualified faculty so they can teach students according to the changing requirements of todays market. And facilities are also very much supportive in students research work and other activites. Read more about GCU here.     

MBA At FCC University:          Forman Christian College is one of the very popular and desired among emerging colleges for MBA. The level and statndard at the beginning is impressive. its planning and methods of studies and up to the mark designing of course outlines and competent faculty complementing all this has made it noticable among students. students are also given full support, guidance and suggestions regarding their studies and career. Students are looking forward to this institute for their MBA in future.
They provide students with opportunity to complete one or two of their semesters in American University, as it has its affiliation with some renown American universities. At FCC students are equipped with international level of education and professionalism.

Institute of Business&Management, UET:        UET, premier institute for engineering, has now come up with its institute of business administration & amp. They have introduced themselves with full implementation of modern techniques and latest methods and facilities for studies. Courses, class activities, quizzes and exams, everything is designed to enhance the intellectual level and inculcate professionalism into their students to compete in diverse market. they are providing students with up-to-date knowledge and skills to built their career.
To read more click here.


This term Turnover is used for so many purposes where some can good and some have adverse impact on situations.
"Turnover can be defined as the percentage of units leaving or replacing the whole family".
Employee Turnover:          Employee turnover means number of employees leaving a company in a given time. Mostly companies see high employee turnover as a negative sign and try hard to retain employees with them because hiring new employees is a costly job. But sometime when companies delibrately fire employees to reduce financial burden.

Sales Turnover:          Sales turnover is the percentage of goods to sold with respect to production. The high this turnover the better for company as both the profit and market share increases with this.

Vicious Circle of Poverty

Poverty is a curse and the biggest hurdle in development of a country. In underdeveloped countries there prevails vicious circle of poverty. There can be various factors responsible for it, for example; underutilization, mis-utilization or un-utilization of resources, low capital formation, population growth, low rate of saving and investment etc etc.

Vicious circle is like as in the following picture:


It shows that when a country is poor, incomes of people are low, when incomes are low they hardly meet the need of bread and butter, in this situation they are unable to save so country has low rate of saving. When there is no saving what would be there to invest. Hence low rate of investment. When there would be no investment, there would be low capital formation and low productivity per worker and because of this workers have low income. So this circle goes on. And it a big hindrance in the development of least developed countries.
In Pakistan’s scenario, people have low incomes, so they can not save, and according to figures saving rate is 14% of our GDP which should be 25%. Now we can not say that this low rate of saving is all because of low incomes, we have consumption oriented economy so people are less willing to save. Middle income people are not left with enough to save and high class social group is more interested in lavish spending. Similarly with have very low level of capital formation and investment. People are not willing to invest, now its also not wholly because of vicious circle of poverty, its partly because of unstable political and social situation of our country, power crisis and terrorism, these factors are also contributing to low investment because of lack of trust. Since the investment is low so productivity is also low.

Stock Options - An HR Approach

Employers use Employee Stock Option Plans to compensate their employees. Employee stock option plan can be define as follows.

"Under Employee Stock Option Plan companies grant employees right to purchase company shares on some future date at a specific price".

As definition shows that this is only a right to purchase company stock on some future date and employees are not actually given anything physically. In this method of compensating employees employer give employees right to purchase company's shares at specific rate on future date which is mostly 5 years. It means that Employer grants right to employee to purchase 10,000 shares of business for say Rs.100 per share after 5 years, now suppose the price of one share is 150 after 5 years. Now employee can earn Rs.50 per share which will made him Rs.500,000.

Benefits for Employees:          There are so many benefits for employees. First of all they get handsome amount of cash after they exercise their right. They feel sense of ownership into the company and this eventually give them job security as well.

Benefits for Employer:          Employers get their employees motivated by giving them Stock Options and as this is a promise for future date so an employee has to stick with company for some years to exercise his right to purchase share which reduces the Turnover of company.