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.


·         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.
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