General Agency Benefits
·
An agency relationship allows you to delegate
authority to another person, which essentially allows you to be two places at
once. Since your agent has authority to make legal decisions and contracts on
your behalf, you can send an agent to represent you somewhere, and you can be
somewhere else. This is particularly helpful when you hire an agent that knows
more about a particular subject than you do.
Real Estate Agents
·
When you buy or sell real property, you most likely
will involve a real estate agent. The agent is a person who represents your
interests and is given authority to take actions on your behalf to purchase or
sell the property. For example, a buyer's agent has authority to negotiate a
sales price on behalf of the buyer, and if an agreement is reached, the agent
can sign the real estate purchase contract. The benefit of real estate agency
agreement is that it allows you to involve an "expert" on the real
estate market to negotiate on your behalf.
Lawyers
·
Another common and beneficial form of agency agreement
is the lawyer-client relationship. A lawyer is an agent of the lawyer's
clients. The lawyer typically has authority to represent the client in court
where the client has no legal training. This gives the client access to legal
knowledge and expertise. The lawyer discusses the case with the client and can
make some decisions, such as court calendaring and motions. Some clients may
even give their lawyer authority to settle a case on their behalf.
Powers of Attorney
·
A power of attorney is a legal document that is
typically included in an estate plan. The power of attorney is essentially an
agency relationship. In the power of attorney, you will name a person who you
give authority to make certain decisions for you. For example, you might have a
financial power of attorney where you give your broker authority to invest your
money in whatever manner the broker sees fit. Or, you might draft a medical
power of attorney which gives your agent, such as your wife or a trusted
sibling or child, authority to make decisions regarding your medical care. This
can be beneficial if you are injured or incapacitated to the point where you
are unable to make your own decisions.
Arrangements
with commercial agents are often entered into by principals without any written
confirmation of the terms of the appointment or the continued obligations of
the agent. This approach is, however, risky and can lead to a number of
difficulties throughout the agency and upon its termination. Richard Bailey, a
Principal in the Commercial team, considers some of the advantages to
principals of having a written agreement in place with its commercial agents.
Principals
need to be aware that from day one of the appointment of the agent the
Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”)
apply. These impose certain rights and obligations on both the principal and
the agent, most of which cannot be derogated from. However, these duties can be
expanded on and clarification given by a written agreement.
Whether
or not a written agreement is entered into at the beginning of the agency, the
agent will still have obtained a number of rights under the Regulations. These
rights, will form the basis of the agent’s agreement with the principal. If a
written agreement is subsequently wanted, it will need to be agreed by both
parties. Often the reason for introducing a written agreement is for the
principal to impose more onerous obligations and to limit its exposure upon
termination of the agency. An agent aware of his rights under the Regulations
may be reluctant to vary them and reaching an agreement could be a lengthy and
difficult process.
One
area where having a written agreement in place can be very significant, is upon
the termination of the agency. Under the Regulations the agent is frequently
entitled to a termination payment and the Regulations provide two forms of
recompense known as compensation and indemnity. Unless there is a written
agreement stating otherwise, the agent will be entitled to compensation rather
than indemnity and this often is of greater benefit to the agent. With a
written agreement, the principal could elect for payment on termination to be
by way of indemnity.
Under
the Regulations there is no method for calculating compensation. Current case
law provides that the assessment of compensation should be based on the value
of the agency as though it were a separate business, which is difficult to ascertain.
On
the other hand, under the Regulations an indemnity is capped at one year’s
commission. Often the indemnity will be the cheaper option for the principal.
If
it can be shown that the agent is in fundamental breach of their contract with
the principal, the agent will not be entitled to any termination payment. This
is usually much more difficult to prove if there is no written agreement in
place, as there are only a few basic obligations imposed on the agent under the
Regulations. If however, a suitable written agreement was also in place it may
be much easier for the principal to show that the agent is in fundamental
breach of the agreement and therefore not entitled to recompense. The inclusion
in a written agreement of a mechanism for setting ongoing minimum sales targets
is one example where the agreement can be very beneficial.
A
written agreement should also set out clearly what sales will give rise to
commission for the agent. The agreement may define the principal’s House
Accounts and perhaps include a procedure for the principal to convert other
accounts to House Accounts during the agency.
There
are many other clauses that can and should be included in a written agreement
to protect the principal during the agency. Taking time to draw up a good
agency agreement may save the both principal valuable time and money in the
future and can be of great assistance throughout the term of the agency and
also upon termination.
The
basic theory behind all business organizations is that a business can operate
more efficiently, and thereby realize a greater profit. Governments seek to
facilitate investment in profitable operations by creating rules that protect
investors in a business from being held personally liable for debts incurred by
that business
What are the
disadvantages of using advertising agencies?
A
main disadvantage of using an advertising agency would be the communication
factor. If an agency does not communicate or relay it's clients goals and
creative wishes properly problems can occur within a contract and lawyers may
have to become involved. Depending on the communicative skill of the agency,
you may be prone to being blindfolded during much of the processes of your
campaign leading to a lot of guessing and speculation.
Another
disadvantage would be the media buying discounts you may not be able to take
full advantage of due to commission barriers within an agency, however an
agency may have better negotiating powers than your company and save you more
money in the long run anyways. There are far more advantages to having the
right advertising agency than not.
Agency problem
It
is also referred to as the principal-agent problem. The difficult but extremely
important and recurrent organizational design problem of how organizations can
structure incentives so that people (“agents”) who are placed in control over
resources that are not their own with a contractual obligation to use these
resources in the interests of some other person or group of people actually
will perform this obligation as promised — instead of using their delegated
authority over other people's resources to feather their own nests at the
expense of those whose interests they are supposed to be serving (their
“principals”). Enforcing such contracts will involve transaction costs (often
referred to as agency costs), and these costs may sometimes be very high
indeed.
Directors,
managers and employees of business corporations are supposed to use their
delegated authority to maximize the total financial returns from the business
to its owners, the shareholders. Physicians, nurses, clinical psychologists,
teachers, lawyers, CPAs, financial advisors and other service-oriented
professionals are supposed to use their specialized knowledge and skills solely
in the best interests of the patients, students or clients who have placed
themselves (and some of their resources) in professional hands in exchange for
the professionals' promises to act on their behalf. Government officials,
judges and politicians in countries embracing the concept of popular
sovereignty are instructed to use the power granted them to make public policy
decisions that further some reasonable concept of “the public interest”
(usually conceived as the common interests of their constituents or of the
country's citizenry at large). Trustees, managers, and employees of non-profit
charitable institutions are supposed to use their control over their
organization and its resources to promote the general purposes for which the
institution was chartered and endowed. Yet if agents are really to perform
consistently in the manner they are supposed to do (that is, in the interests
of other people), they will need to be suitably motivated by some combination
of material incentives, moral incentives, and/or coercive incentives that will
make it seem worth their while to attend faithfully to their service
obligations and fiduciary duties. The more autonomy that agents have to have in
order to do their particular kind of work effectively and efficiently, the less
useful coercive sanctions are likely to be, and the more important it becomes
for agents' moral and material incentives to be appropriately aligned with
their broader obligations to their principals. That is, organizations need to
be structured in such a way so the agent will expect that diligently serving
the interests of his or her principals will also be in his or her own long-run
best interests. In order to accomplish this, the principals need to be
reasonably clever in setting up the initial rules of the game that are set in
the employment contract, sufficiently vigilant in keeping track of their
agents' quality of performance over time, and willing to bear at least some
minimum level of “agency costs” in order to provide the necessary incentives.
Examples
of some techniques commonly used to overcome or alleviate the agency problem
would include: (1) profit-sharing bonuses, contingency fees, sales commissions,
merit raises, executive stock options and various other contractually specified
methods of setting the amount of the agent's financial compensation in
proportion to measurable results; (2) organizational hiring and promotion
policies for people in responsible positions (agents) that emphasize
identifying and selecting candidates whose reputation (based ideally on past
performance) indicate they are “well-motivated,” “dedicated to the ethics of
the profession,” and generally “of good character” — i.e., people who feel a
strong sense of moral obligation to do their best to do what they have promised
to do, even when no one is likely to be watching; (3) institutional
arrangements of accountability (such as boards of directors, auditing
committees, inspector generals' offices, professional society ethics
committees, and government regulatory boards) for detecting and then punishing
extreme dereliction of duty, either by simply firing and disgracing (or perhaps
de-licensing) the unworthy agent or possibly by aggressively pursuing civil or
criminal penalties through the courts; (4) arrangements such as elections
whereby the recent performance of the agent may be periodically scrutinized by
his or her principals and competing candidates for the job may be allowed to
make their case for replacing the incumbent agent by revealing his or her
shortcomings and showing how performance might be improved through a change in
command.
The
bottom line, however, is that the agency problem can never be 100% solved in a
world where virtually everyone has a healthy regard for their own self-interest
and the relevant information for evaluating performance is imperfect, costly to
obtain and unequally distributed between the agent and his principals. Indeed,
rational principals will only pursue the available techniques for control to
the point that the marginal increment in “agency costs” rise to equal the
marginal benefits to them of the additional increment in “faithfulness” that
they produce. (That is to say, sometimes it is cheaper for principals to endure
a certain amount of dereliction of duty by their agents than it is to pay for
the precautions needed to prevent or punish it.) In some kinds of institutions
— especially those where results are not readily measurable with much
precision, those where the nature of the agents' work is such as to require a
very high degree of expert judgment, those where lines of responsibility and
authority are very complex, those where agents work individually in widely
dispersed work places, those where the agent's activities necessarily involve a
lot of “judgment calls” to cope with rapidly changing circumstances and highly
uncertain information, and those where large numbers of principals have only relatively
small individual “stakes” at risk — the incentives for agents faithfully to
represent their principals may easily become so weak as to be largely
ineffective. Experience demonstrates that these kinds of organizations often
come to be run mainly for the benefit of the agents (managers and other
employees, service professionals, politicians, officials) rather than their
purported principals (stockholders, voters, taxpayers, clients, etc.). Two of
the important tasks of the academic disciplines of business administration and
public administration are to identify, and then to devise cheaper substitutes
or remedies for, organizational arrangements that are characterized by costly
agency problems.