Agency Theory
Agency Theory
Description
Agency theory describes the relationship between principals (shareholders, investors and owners) and agents (management). Theoretical discussions in business and academia may be a modern phenomena, however the dynamics surrounding agency relationships have been around since the dawn of barter and exchange.
Most business relationships are fundamentally agency relationships. In simplistic terms principals have interests and goals to which they have transferred the means, responsibility and some authority to agents with the expectation that their wishes will be carried out. The problem is that the principal's and agent's objectives may not be congruous. Even in the most favorable situations potential for conflicts do exist. To minimize conflicts principals and agents attempt to seek common ground. Principals may offer incentives in an effort to motivate agents. Agents on the other hand may shirk their responsibilities when the believe the......
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Approximate Word Count: 475
Approximate Pages: 2 (250 words per double-spaced page)
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