Order #276441109 Essay

Student’s Name

Professor’s Name



Principal-Agent Conflict


This paper is a response to Mini-Case number 21: “HP’s Boardroom and Divorce: The applicable chapters in this Mini-Case are Chapters 11 and 12 of the Rothaermel second edition text; – Organizational Design: Structure, Culture and Control, and Corporate Governance and Business Ethics. In page 436, of the Rothaermel second edition text, he notes that the major problems being faced by most public stock companies revolve around the agency problem. He states that whenever there is a separation of ownership and control, a conflict of principal-agent interest ensues.

Don't use plagiarized sources. Get Your Custom Essay on
Order #276441109 Essay
Order Essay

The agents (managers) who control the company on behalf of the owners (shareholders) tend to have personal interests and ambitions which in most instances is not in sync with the principals. In this Mini-Case, HP’s directors’ personal ambitions to be credited with the financial performance seems to be doing more harm than good to the shareholder’s value. This frequently puts them frequently in conflict with the CEO.

This mini-case is a perfect example of how the principal-agent problem is affecting most public stock companies.

Key problems noted in the mini-case include:

Are the dramatic shows by the management and the board responsible for the sustained drop in the value of the Company’s shares? How did the management address the accounting inaccuracies raised by Deloitte? Why did the management not investigate given the red flag? Does it explain the consistent withdrawal by investors and the subsequent growth of debts? Is it responsible for the recent split of the Company?

Is the management conscious about erosion in shareholder value? Does the management understand the reason behind HP’s market value dropping by almost 80% between April 2010 and November 2012? How did they address the 42% decrease in the Company’s stock price?

Assuming that the decline was not occasioned by the failure of the board, does the Board have any Corporate Governance problems? Does it deal with ethical concerns touching board members in the right way? Do employees and board members value integrity, trust, and respect for each other?

If they are handled in the proper way, why is HP losing its competitive advantage? How does the board address poorly thought out strategic decisions occasioning huge losses to the company? Does it have a policy for hiring board members and CEOs? What recourse is there for those who contravene the policy?

What are the core values of HP? Do they apply across the entire company? Has the time arrived to review the Company strategy together with the core values?

Thesis statement: Following a review of the HP mini-case, it can be deduced that whenever the interests of those entrusted to manage the resources of a company are not in congruence with those of the owners of the resources, a conflict ensues. A principal-agent conflict is catastrophic and can take even the blue-chip companies on its deathbed in a very short period. Therefore, a quick solution needs to be sought to address this catastrophe.


The principal agency problem at HP is not isolated. World over, many companies have found themselves embroiled in scandals due to their employees violating their ethical policies. However, what is interesting in the case of HP, is the fact that this is a public stock company. The cases of ethical Conflicts at the company keep recurring without any sign that they are about to stop. From Patricia Dunn’s spying scandal to Whitman, to the immediate former CEO Mark Hurd, CEO who has recently been dogged by sexual harassment accusations by Jodie Fisher female marketing contractor (Mark Hurd Letter Released: 10 Most Embarrassing Quotes From The Ex-HP CEO’s Controversial Letter, 2011), the company clearly has an ethics problem. What is even worrying is the disregard that the board has in dealing with these scandals begging the question: Does the Board have the Shareholders interests at heart?


Since the executives at HP have proven to be a setback to the company’s shareholder’s value through their unending boardroom drama, the shareholders should escalate the conflict in the legal realm. Perkins ethics case was the first one (Kaplan, Breslau, Stone, Joseph, McGinn, & Gordon, 2006). Patricia Dunn, Whitman and Mark Hurd have later followed with ethical scandals though of a different nature. All these should have been taken to court by the board for violating the company ethics policy. Though Dunn notes that there was a legal case after her case (Bain, 2006), the Board continued violating the core values. Where the legal realm does not yield any fruits, the shareholders should facilitate the independence of their board of directors (Rothaermel, 2017, 437 – 439. This can be achieved by ensuring that the Board meets severally during the year to discuss the strategic direction of the company. This way, HP can avoid some of the losses occasioned by the mistakes of previous CEOs. It would also help restore the lost companies trust.

The Board also needs to develop and implement a policy document providing guidelines on inter-board member dealings. If such a policy existed, board members would not, for instance, have hired investigative spying agencies to spy on fellow board members. They would only apply what is provided for in the policy. As a matter of fact, the policy should be designed such that it is mutually exclusive and collectively exhaustive in order to address all the grievances harbored by the board members. Some of the issues that need to be ingrained in the policy should include; – the role of the board in the hiring of the CEO, reporting of the CEO to the Board, functions of the board, its independence, composition, confidentiality, and consequences on the violation.


It is apparent that in the HP mini-case the conflict between the CEOs and the Board of Directors is to blame for the destruction of the market value of the shares. In fact, this mini-case is a perfect example of how catastrophic the conflict can be. I recommend that the Board gets firm in their oversight role and ensure that the CEO is solely responsible for their decisions. The Board should also effectively take charge to ensure that corporate governance takes its place in promoting accountability on behalf of the shareholder.


Kaplan, D. A., Breslau, K., Stone, B., Joseph, N., McGinn, D., & Gordon, D. (2006). SUSPICIONS AND SPIES IN SILICON VALLEY. (Cover story). Newsweek, 148(12), 40–47.

Bain, M. (2006). TROUBLE IN THE BOARDROOM. (Cover story). Newsweek, 148(12), 44–45.

BIBLIOGRAPHY Mark Hurd Letter Released: 10 Most Embarrassing Quotes From The Ex-HP CEO’s Controversial Letter. (2011). Retrieved from HuffPost:

Rothaermel, F. T. (2017). Strategic Management, 2e. New York, NY: McGraw Hill Education.

Still stressed from student homework?
Get quality assistance from academic writers!