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CHAPTER IINTRODUCTIONBackground of the studyAs students of MBA program, 1st trimester, we are required to research on Agency, problem of a specific industry and prepare a report consisting possible suggestions. This intensive program, as a blend of real world experience and classroom lectures, gives the students an opportunity to identify the present situation, its future prospects and gain handful of information. Thus, students are assigned the topic- Agency problem on Unilever Nepal Ltd. and thereby we are submitting this report. Introduction of Agency problemThe principal–agent problem, in political science and economics, (also known as agency dilemma or the agency problem) occurs when one person or entity (the "agent") is able to make decisions and/or take actions on behalf of, or that impact, another person or entity: the "principal". This dilemma exists in circumstances where agents are motivated to act in their own best interests, which are contrary to those of their principals, and is an example of moral hazard.The agency problem does not exist without a relationship between a principal and an agent. In this situation, the agent performs a task?on behalf of the principal. Agents are commonly engaged by principals due to different skill levels, different employment positions or restrictions on time and access. For example, a principal will hire a plumber — the agent — to fix plumbing issues. Although the plumber‘s best interest is to collect as much income as he can, he is given the responsibility to perform in whatever situation results in the most benefit to the principal.The agency problem arises due to an issue with incentives and the presence of discretion in?task completion. An agent may be motivated to act in a manner that is not favorable for the principal if the agent is presented with an incentive to act in this way. For example, in the plumbing example, the plumber may make three times as much money by recommending a service the agent does not need. An incentive (three times the pay) is present, and this causes the agency problem to arise.Objectives of the studyThe major objectives of the study are as follows:To know about what is agency problem.To know how agency problem takes place in organization.To gain information about agency problem occurred in Unilever.To know how agency problem were solved in Unilever.Chapter IIAgency Problem at Unilever Nepal Limited2.1 Introduction to Unilever Nepal Limited (UNL)Unilever Nepal Ltd. Is branch of Hindustan Lever Ltd. Company was starting production of detergent powder in 1994 & from 1995 staring the production of toilet soap & from 1996 started production of close up tooth paste. Know these day our comapny producing Soap, Tooth Paste, Detergent, Hair care, skin care. Unilever Nepal Limited (UNL) has established itself as the largest FMCG manufacturer in Nepal. In September 2017, UNL marked 25 years of existence in the country. With over 28 brands spanning eight distinct categories and a strong focus on quality and consumer satisfaction, Unilever is one of the most trusted corporates in Nepal. Unilever Nepal is the market leader across categories for the brands manufactured in Nepal. The market penetration of UNL is signified by the fact that the brands of the company are found across the country.2.1.1 Business Facts and FiguresProvides direct employment to 243 people and indirectly to more than 20,000 people across the value chain.Has leading market share in all operating categories within Nepal.Unilever Nepal is the highest dividend yielding stock listed on NEPSE (The Nepal Stock Exchange Limited)As per the annual report for FY 2016-17, UNL has reported:Net sales of 4.44 billion NPRNet profit of 965 million NPRTurnover Growth of 13 per centMarket Capitalisation of UNL is 30 Billion NPR (approx.)UNL has embarked on a transformational journey, and aims ‘to earn the love and respect of Nepal by making a real difference to every Nepali.’ We intend to do this by driving our brands and business to create a ‘Swastha’ (healthy) and ‘Sakchyam’ (prosperous) Nepal as a part of the Unilever Sustainable Living Plan.Driven by these goals, UNL has started various initiatives in the areas of health and hygiene, enhancing livelihoods and environmental protection which is well incorporated in the purpose ‘Swastha Nepal, Sakchyam Nepal, Hamro Nepal.’2.2 Agency problem in Unilever Nepal LimitedUnilever Nepal faced the agency problem in February 2012. Workers at Unilever Nepal Limited (UNL) have shut down its factory in Hetauda after failing to resolve the wage issues with the management. ?The management issued a press statement saying that the workers were paid salaries much higher than a First Class Officer of the government was. ?UNL is a subsidiary of Hindustan Unilever, an Indian company and manufactures products like soaps, detergents and personal products for the domestic market and exports to India.?The workers had demanded a 50 percent increase in salaries and allowances and Rs 1 million as an interest-free housing loan and Rs 100,000 per year per person for house maintenance. Workers lockout the factory for 11 days. During that period Unilever bearded 5 million rupees per day loss. The management had instead offered to increase the benefit package and had earlier increased the workers' salaries by 69 percent.?The agitating workers informed the media that they were ready to call of the strike if the management pledged to address the issues in a phase-wise manner. The management has blamed the workers for not being considerate and flexible. The workers had placed their demands in the first week of November and 21 rounds of talks have been held so far. The company provides life insurance and pension insurance schemes and has also pledged to provide interest free housing loan of Rs 150,000 to each worker on top of the Rs 400,000 credit provided to them last year.UNL again faced the agency problem in 2016. Workers began limited?strike?action on 10 July after management refused to implement an agreement reached on 29 May. The workers had been holding the strike since last 28 days blaming the management of breaking the three point agreement which had taken place on May 29. The factory workers said they ended the?strike?after reaching a three-point agreement with management at the District Administration Office. Management claimed, however, that the union was still disrupting production and imposed the?lockout.Unilever Nepal Ltd (UNL) said Sunday that a strike at its factory in Hetauda has stopped its products from reaching the market and consumers.“The supply to the trade of daily necessity products manufactured by UNL has been severely disrupted,” UNL said in a statement on Monday. “As a result of the actions of the Union and the illegal strike, which disrupted normal factory operations, UNL had no option but declare a lockout of operations on 7th August. The management displayed the notice of the lock out at its factory premises and has informed the statutory authorities,” it added.The company said its management had, on several occasions, appealed to the leaders of its work force to address their issues through dialogue.“However the Union Leaders continued with their unreasonable pressure tactics and made it impossible for the management to carry out the day to day operations,” UNL said. “The management was hence forced to take this step of declaring a lock out due to complete cessation of normal factory operations.”Unilever Nepal Limited (UNL) on Thursday said it is lifting the lockout at its factory in Hetauda, Makwanpur. The factory has remained out of operation since August 7 due to a strike called by trade unions.The company decided to resume operation following a tripartite meeting between the representatives of trade unions, Makwanpur Chamber of Commerce and Industry, and UNL management on Wednesday.“The company agreed to reopen its factory by withdrawing lock out as an outcome of the meeting wherein representatives of the two workers’ unions extended an assurance of good conduct and productive engagement for the functioning of the factory,” says a press statement issued by the company, which does not specifically say when operations would resume.With reopening of the factory, the UNL management has also called on its workers to resume work. “Management is pleased to welcome back all the workmen in the factory and wish all employees greetings for the coming festive season and best wishes ahead,” says the UNL statement.Workers of UNL had staged protests since July 10, demanding allocation of Rs200,000 as “residential fund”. The workers also claimed that the management had refused to implement an agreement on “residential fund” reached on May 29.Following a three-point agreement with the management, the workers on August 8 called off their 28-day strike. However, the UNL management again locked down the factory after a Maoist-affiliated trade union issued a deadline, demanding that the management reinstate sacked workers and fulfil their 15-point demand. The UNL had cited “lack of safety” as the reason to close down the factory and stated it was not in a position to meet the entire demands of workers.Chapter IIIMajor Findings and Discussion3.1 Major FindingsUnilever Nepal faced agency problem in different period of time. Agency problem is not new issue for Unilever Nepal. Many times, there arises conflict between employees and management. The following are the major findings of this study:Unilever Nepal faced the agency problem majorly in 2012 and 2016.The major cause of the agency problem was the conflict between interest of employees and management.The issues raised by the employees were to increase in salary and to provide interest free housing loan with Rs. 1 lakh per year per person for the maintenance of the house in 2012 and in 2016, they demanded Rs. 2 lakhs as a residential fund.The management claimed that they are providing good incentives and other benefits for the employees.To make fulfill their demand, employees locked out the factory for 11 days in 2012 and 28 days in 2016.During the lockout of 2012, Unilever bearded 5 million rupees per day loss. Management responds the demand of employees by incrementing salary by 69%, providing life insurance and pension insurance and providing interest free housing loan.The agency problem can be arise in any organization because of the conflict between employees and management. The agency problem can caused disruption in the operation of organization and it may lead to serious strike and other harmful activities and it may lead to failure of organization. Therefore, the management of company should respond to the issues as fast as possible. Company should try to fulfill the genuine demands of employees by the process of collective bargaining. From the part of employees, they should demand for the necessary things in legal way. Therefore, the agency problem can be solved by the process of collective bargaining and by following other genuine ways of solving the problem.Chapter IVConclusion and Recommendation4.1 ConclusionThe conflict between the employees and management is unavoidable. Every organization faces conflict. There is not any organization who have not any conflict. Conflict is the opportunity for the organization if it is handled properly. Proper handling of the conflict always gives positive outcomes to the organization. The management should take conflict as positively and try to resolve as fast as possible.The purpose of this study was to know about the agency problem, how it takes place in any organization and how does the company tackle it. For understanding about agency problem, we took the example of Unilever Nepal Limited (UNL).We came to know that the agency problem refers to the conflicts between the interest of the employees and the managers. It takes place in any organization if the demands of the employees are not fulfilled by the management. Similarly, Unilever also faced the agency problem in 2012 and 2016 as Unilever Nepal could not fulfill several demands of its employees. As a result, Unilever Nepal had to face several lockouts and strikes in the factory. Due to these, It had to bear several losses. Hence, Agency problem can be arise in any organization at any time. It can lead organization towards serious damages and failure. So, the management should address agency problem in time and should try to fulfill the genuine demands of the employees in proper way. This can help the organization to survive in long run, to maintain good relation between management and employees and to create peaceful working environment.4.2 RecommendationOn the basis of this study, the recommendation can be made as follows:For Unilever Nepal: Since Unilever is a big multinational company, it have got large number of manpower where chances of conflicts are high. That’s why, it needs a Conflict management committee.It should have proper conflict resolution procedure.At the time of recruitment, the contract between company and employees should include about the incentives, infreightment benefit and other facilities provided by company to their employees and the guidelines to be followed by employees. Management should always be prepared to face the conflicts and should address the problem in time.For employees:Employees should only make genuine demands to the company.Employees should not interrupt the operation of organization for long term by their strike keeping in mind that it may give threat to their own job.For government:Proper policies and guidelines should be made and strictly regulated about the duties and right of employees and companies.REFERENCE ................
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