Agency Problems

Frequently agency problems arise between the management teams of firms and their equity investors. Investors seek to maximize the present value of their investment which may conflict with the managers of the firm they are invested in. Managers may become risk averse or spend company capital on managerial perks, which do not add value to the corporation. New Belgium has taken a rare approach to handling agency problems by becoming 100% employee owned. Current Board Chairman and acting CEO Kim Jordan sold all of her shares to the ESOP program which makes the employees the equity owners. If the managers and employees are the holders of equity in the firm, they by default will act in their own best interest which goes a long way to preventing agency problems from arising.