 Bismillahir Rahmanir Raheem and Aslamikam everyone. Good to see you again. In our last session, we were basically talking about the different theories of corporate governance and we saw that there are eight different type of theories and definitely in each theory there are many different elements, there are different variables and most importantly there is a different texture and contextualization based upon the country or the region in which that corporate governance theory is being practiced and the most important thing which we looked at in the last session was that theories are not followed in isolation but actually they tend to overlap and many times they tend to create an amalgamation theory of corporate governance. So today ladies and gentlemen, we are going to be talking about one of the very important and very fundamental theories and that is the agency theory. Now when we look at the agency theory, it can be traced back to the globally renowned and historically prominent economist and that was Adam Smith who identified an agency as a problem. Now the fundamental theoretical basis of corporate governance is agency costs and when we look at this then a very important phenomena tends to emerge and that is called agency problem. So what is agency problem? Agency problem is the mismatch of objectives between owners who are called the principals and the management who are called agents. Now this mismatch can many a times lead to the bankruptcy of a particular organization. It can lead to its annihilation, it can lead to its elimination, it can lead to its scaling down below economies of scale. Now this mismatch is a mismatch between the principals who are the shareholders and the management who is the agency working on behalf of the different shareholders and that leads to the agency problem. Now the cost incurred to do away or to bear the differences or the agency problem is called the agency cost. Now when we are looking at the agency cost then definitely if there is a problem, there is a conflict, there is a misunderstanding or there is something which leads to a stalemate, which leads to stagnation then definitely there is a huge cost involved in all of this and that is called the agency cost. So it is very important that the management and the shareholders and the board they work hand in hand in tandem with each other or otherwise it could lead to an agency problem which would definitely have agency cost and those costs sometimes can be phenomenal and very deadly because it can lead to the closure of the company. Therefore having a congenial and comfortable, healthy, positive relationship between the management who are the agency and the shareholders who are the very foundation and principals of the organization that is extremely important and whenever there is a mismatch they always are problems. Now when we are talking about the agency theory in the modern corporation, managerial actions depart from those required to maximize take holder returns. Now a very important thing is that there is an invisible line that in the optimization or in the maximization of profits the agency which in this context are the management they do not start trampling on value systems. They do not start sacrilegeing on the different elements of success within the organization. They do not get involved in such activities which would lead to the immoral labeling of the organization and they are above board of being sensitized or being encrypted with the negative tendencies of management to optimize the profit. So that again is a very very important aspect. We talk about agency loss, it is the extent to which returns to the residual claimants. The owners fall below what they would be if the principals the owners themselves exercise direct control of the corporation. So when we are looking at the agency loss then there is this possibility that if the shareholders take direct management of the organization then maybe they would not have faced so many losses and when we tend to calculate that that becomes the agency loss in totality. The agency theory specifies mechanisms which reduces the agency loss. These include incentive schemes for managers which reward them financially for maximizing the shareholder interest. So again to ensure that there is no corruption, that there are no shortcuts and to ensure a healthy positive constructive environment different incentive schemes can be given to the employees so they do not have to resort in negative activities which would eventually have a negative impact on the organization. So when we're talking about the problems with agency theory then a fair and accurate financial disclosures is very important. The quality and independence of statutory auditors, preparation of the accounts by management, scrutinization of accounts by the auditors, transparency, discouraging, value-destroying, deviant behavior and audited accounts to all shareholders. So these are certain things which can ensure that the overall structure of the organization is constructive but again we have to look at that that it is easier said than done and in real life there are many implications and many problems and many connotations which have to be assimilated which have to be researched and then based upon that assimilation and that research customized solutions and customized actions can be developed for the betterment of the organization which is extremely important in corporate governance. Now another thing is having an efficient and independent board of directors and when that is not around that tends to cascade a lot of the complications and would lead to a lot of financial loss. Now when we're talking about an independent board then a joint-stock company is owned by the shareholders, appointment of directors by the shareholders, directors are fiduciaries of the shareholders independence during the determination of the composition of the board. So all of these things would lead to a higher efficiency level and then the creation of committees and subcommittees and not only to create the role of what we call committees and subcommittees but to ensure that the committees and subcommittees are effectively working for the betterment of the organization becomes a primary responsibility of the agents and the agency who are the management of that particular corporation. So ladies and gentlemen thank you so much we will be moving on to our next session which will again talk about a different theory of corporate governance. Thank you so much.