This scenario shows that there’s a conflict between the agents of Telstra and major stakeholders. The agents who are charged with representing the Company in various operations including sales seek illegal ways to increase sales. However, major or main stakeholders demand that the Company adhere to the legal standards to reduce penalties and legal costs. The agency theory is one of the most important theoretical frameworks used to describe the issue and assess the impact of the actions on the company and its shareholders in general (Voorn, Van Genugten, & Van Thiel, 2019). The agency theory is applicable to the solution of a principal-agent dilemma in which one person, referred to as the agent, is authorized to make choices and act on behalf of the principle, in this instance the whole company or the shareholders (Hirst & Bebchuk, 2019). Because the agents seek their interests above the principal, this creates conflict of interest. The fact that the principal is the shareholder majority, this scenario can emerge when the management structures of different organizations are used.
The company’s overall ideology and aspirations are very different at Telstra. Management wants to achieve large market success using legal methods. However, the agents want instant success, even if it means losing their brand and being sued (Li 2011, Li). The theory of agency states that if an agent has a conflict with the principal it causes the principal to suffer a particular loss (known as the agency loss) because they use principal’s resources. This is where the agents are sales people who act on behalf of principals and other stakeholders. It has been noted that there have been substantial agency losses. First, significant agency losses have been observed. The legal expenses between 2016-2021 and the $50 million fine for engaging customers are large amounts that can significantly impact the earnings of stakeholders (ACCC, Telstra). [2021] FCA 502 (13th May 2021). This has a detrimental effect on the Company’s ability to realize its financial potential as well as its brand reputation. It is also portrayed as an institution which disregards ethical standards when dealing with clients.
One of the main factors contributing to agency problems is a poor connection between agents and principals. The shareholders must ensure that they establish a strong connection with their workers and management in order to support ethical practices and guarantee that both parties have a shared interest (Hirst & Bebchuk, 2019). Telstra management refuses to take action to correct and minimize illegal acts even after they have been acknowledged. This is an indication of the tension in the relationship.
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