The Managing Agency System: A Reply to R K Hazari


Sudhir Mulji

That the managing agency itself does not hold a large percentage of the equity capital of the managed company is neither here nor there. What is relevant is that it is an instrument of control and is in many ways, as is argued below, a pretty good instrument.

In the ultimate analysis, the strength or weakness of a company is not technical but financial; and one of the most important services that the managing agents perform is to provide the managed company an access to the capital market which it would not have otherwise.

Hazari also finds the managing agency system expensive. This is the fundamental difference between private sector and public sector management. In the public sector the belief is that personal incentive is not necessary for encouraging efficiency, while the private sector attaches the greatest importance to incentive. It is probably true that management costs more in the private sector, but on the whole it would appear that the private sector also finds itself better rewarded for its expense.

SOURCEThe Economic Weekly
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