As Chief Operating Officer, Peter has been running many of the day-to-day operat

Question

As Chief Operating Officer, Peter has been running many of the day-to-day operations, such as supervising employees and overseeing production of lemonade. However, he is also engaged in other actions not listed in his job description, such as negotiating the purchase of lemon sales from other kids in the neighborhood with lemon trees in their yards. Your brother has so far allowed Peter to engage in these actions but is becoming concerned. What kind of agency relationship does Peter currently have with your brother? What kind of agency relationship would you recommend?

Explanation / Answer

As per the given details, Peter as COO represents the top management of the organization, owned by y brother. Hence, Peter is acting as agent of the business owned by his principal that is my brother. Here, Peter is responsible for taking day to day as well as strategic operational decisions. Though, it is a case of Job enlargement when Peter takes purchase and negotiation decisions, when he conducts dealings to buy lemon from kids. As per this agency relationship, Peter does not get paid or incentives for these additional work. It can create a scope of agency conflict. It is also an example of buyer agency relationship.

The agency relationship will be recommended that will align all the activities performed by Peter and subsequent gains to the organization, with the rewards offered to Peter. It will help Peter to take the purchase decisions that are best for the organization and also helps Peter to earn more incentives.

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