[Verse 1] When you own a piece of company stock You're the owner but you're not in the driver's seat Managers run the daily operations But their goals might not be what you need They want big salaries and fancy perks While you want profits and returns that grow This misalignment causes friction It's an agency problem you should know [Chorus] Agency problems arise when interests don't align Shareholders want value but managers want to shine Bondholders need safety while equity takes the ride When goals are different conflicts will collide Remember the players and what they desire Agency costs when interests don't aspire To the same direction or the same reward Agency problems strike when goals aren't shared [Verse 2] Picture managers making risky bets With your money but it's their career at stake They might choose projects that make them look good Even if better returns they could make Or maybe they're too conservative now Avoiding risk that could pay off well They get their salary either way While your returns have a different tale [Chorus] Agency problems arise when interests don't align Shareholders want value but managers want to shine Bondholders need safety while equity takes the ride When goals are different conflicts will collide Remember the players and what they desire Agency costs when interests don't aspire To the same direction or the same reward Agency problems strike when goals aren't shared [Bridge] Shareholders versus bondholders too When debt is high and times get rough Equity holders might take big risks 'Cause they've got little left to lose But bondholders want steady payments Safe investments that won't default Two different classes pulling apart Each looking out for their own vault [Verse 3] How do we solve these agency woes Align incentives and make it right Give managers stock-based compensation So their success matches shareholder sight Board oversight and transparency Monitoring helps to keep things fair When interests align and goals are shared Agency problems disappear [Chorus] Agency problems arise when interests don't align Shareholders want value but managers want to shine Bondholders need safety while equity takes the ride When goals are different conflicts will collide Remember the players and what they desire Agency costs when interests don't aspire To the same direction or the same reward Agency problems strike when goals aren't shared [Outro] In corporate finance remember this song When different parties don't get along Agency problems cost money and time But solutions help interests align
← What is Corporate Governance? | Board of Directors: Structure and Roles →