Prioritise fiscal management

Section 4 : How does the agency problem apply?

The agency problem is a conflict of interest that occurs when someone charged with acting in the best interests of another is motivated to act in their own best interest instead. An example might be a money manager that puts their own salary ahead of prudent decisions for their clients. It creates a situation where they benefit from their client’s losses.

In business, an organization’s financial managers are supposed to act in the best interest of the company. If instead, they’re looking out for themselves, seeking to enrich their own positions at the expense of corporate interests, they put the entire organization at risk.

This is financial acumen gone wrong. The manager is using their fiscal skills to better themselves, to the detriment of everyone else. It’s critical that owners and upper management are always vigilant against the misuse of funds by employees and other company agents.

Financial acumen is holistic. It encompasses every decision made at every level of a company. Prudent managers never take their eyes off of what’s important. The moment they do the potential for disaster increases.