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Conflicts are present in every individual during their daily encounters. In addition to that, they can also occur in an individual’s professional and personal life. Moreover, a conflict can be defined as a circumstance that occurs in a human beings life that has a negative effect on the person and may negatively affect another party. Since conflicts arise in everyone’s life, it is their role to ensure that they make concerted efforts in a bid to eliminate this conflict in their workplace. Similarly, conflicts in workplaces are solved to achieve harmony among the employees (Booher, 2013). Conflicts have a tendency of occurring in businesses and they lead to organizational issues in the case where the conflict is between two workers or a group of individuals in a company. Conflicts in workplaces can occur due to jealousy. One employee in a company can be jealous of the achievements of another worker and this may lead to the rise of a conflict among them. Individual goals also led to conflicts where a person’s goals are different from or go against the goals of another person. Personality differences can also lead to workplace conflicts since not all people are the same and they may have a difference in personality. Status and cultural differences may also be a source of conflict in an organization.
In a workplace set up, there exists a conflict between creditors and shareholders. There is a belief in most of the companies that creditors are principals while shareholders are agents. There have been a conflict of interest between the shareholders and creditors and this has gone through the managers. However, conflicts of interests may arise between the creditors and the shareholders when the managers in a company make decisions to value the shareholders in the company and they ignore the creditors (Khan, Iqbal & Hussainy, 2016). This leads to the act of the creditors feeling that they should be in the place of the shareholders and the company should value them and ignore the shareholders. Creditors in a company play the role of providing their capital to the company at a fixed interest rate for a certain period of time and the firm uses it for the given time in accordance to the agreed terms and conditions.
Both the creditors and shareholders have a similar claim on the asset and the earnings that a company has acquired. Creditors are prioritized through the act of them receiving interests and principal repayments that belong to them. Moreover, the creditors then invest their capital in a bid to earn an interest that is fixed and for them to acquire the principal that is paid back to them upon maturity. On the other hand, shareholders tend to invest their capital for the purpose of maximizing the market price of their shares. This has therefore led to the concern among the creditors who view their earnings to be sufficient enough to cover their fixed payments and principal repayments on time (Sharma & Mehta, 2017). Creditors are not entitled to extra returns from the additional risks in a company but they have to bear these risks that are undertaken by the company. Therefore, the creditors oppose these high risks. Some managers in a company tend to invest in a project that has a high risk and if the project becomes unsuccessful, creditors have losses and the purchases may repurchase the outstanding stock of the company and they at times have to borrow funds in a bid to increase the leverage situation. This favors the shareholders and creates a conflict between them and the creditors.
There are various ways that the conflict between shareholders and creditors can be solved. The first is that there should be collateral security where creditors should demand security when it is necessary before granting credit (Terason, 2018). Moreover, convertibility can also be carried out. In the case where the company is unable to pay its debts, there can be conversion of the debt capital into shares that are preferred. The firm may also incur monitoring costs.
In a company, shareholders are the active principals while managers are viewed to be the passive agents. Shareholders are the real owners of the firm though they cannot manage the company themselves actively since they are many and they are in different geographical locations (Booher, 2013). Shareholders can also not actively manage a firm since it is believed they do not have the required skills, expertise and experience in managing a company. Therefore, they take part in electing a Board of Directors (BOD) that aid in the management of the firm. The Chief Executive Officer (CEO) is the head of the BOD.
Managers in the company are concerned with the security of their jobs, their personal wealth, their fame and the benefits they require from the company. This may result in potential losses of wealth for the shareholders (Terason, 2018). This is, therefore, a cause of a conflict between the shareholders and the managers. The managers have a situation where they have to choose between their personal satisfaction and maximizing the wealth of the shareholders.
Agency costs in a company can be defined as conflicts that exist between the company’s management and its shareholders. The root of agency costs is believed to be the shareholders. The shareholders in integrated firms may face disagreements and they may fright severally and this may threaten the company’s stability (Sharma & Mehta, 2017). The agency problem may occur since the management of the company achieves its goal at the expense of the company owner’s goals. Since the managers have more information that concerns the company, they may manipulate the contentious information in the company for their personal benefit. Therefore, the managers may not work hard for the purpose of maximizing shareholder’s wealth since only less of it is theirs.
At times, since the managers want to keep a good name, they may give corporate earnings to charitable organizations. They may also do this for personal satisfaction. They may also take part in the poison pill which means that they may pose the company to be unattractive for other people to come and take over it (Khan, Iqbal & Hussainy, 2016). Similarly, they may be part of greenmail which means that they can purchase shares from an individual for the purpose of trying to gain control over the company. They do all these to prevent a takeover that is hostile.
In a bid to solve these conflicts, the shareholders should agree with the company’s management on the decisions that should be made by them. The shareholders could also appoint representatives to work from inside the company (Booher, 2013). These representatives should always be part of the meetings that take part in the company and they should give a weekly report on the findings that they have come up with from the company.
In conclusion, it is evident that conflicts are present in every individual’s life and these conflicts should be solved. In the workplaces, conflicts are common. For example, there is a conflict between the shareholders and the managers in companies and there also exist conflicts between creditors and shareholders. In addition to that, these conflicts can be solved by having the skill of decision making and there should be an agreement between the two parties on the type of decisions that could be made.
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