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Agency problem in SOEs of China an approach from Business Ethics If people have no faith I dont know what they are good for Can a vehicle travel without a link to a source of power Confucius 1 Introduction Agency problem is a worldwide problem wherever it is in western countries or China It is inevitable during the development of the firms organization As long as the interests between the owner and management are not aligned the conflict is existed Many western firms have established the rules and incentive systems to prevent agency problem Somehow it works We find it is not enough to overcome the problem China has undergone a long period economic reform During the reform how to improve the SOEs performance is a hot focus In the past all the SOEs were controlled by the government what the companies doing were decided by the government then on one side the executives did not take the full responsibility for the company on the other side the officer blamed the managers for the bad performance There are no clear boundary on the space of freedom and responsibilities see Georges Enderle The agency problem became even worse because of this phenomenon Now China has tried a lot of methods to establish the modern organization of SOEs The boundary between the government and the executives of SOEs has been clearly set Some SOES have been published However we find that the agency problem still exist more or less and the business ethics do be involved And business ethics can play a virtually important role in dealing with the agency problem during the economic reform 2 Definition of agency problem Before we go further we need to define what is agent and what is agency
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