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Subject 3. Principal-Agent and Other Relationships in Corporate Governance Shareholder and Manager/Director Relationships
Problems can arise in a business relationship when one person delegates decision-making authority to another. The principal is the person delegating authority, and the agent is the person to whom the authority is delegated.
Agency theory offers a way to understand why managers do not always act in the best interests of stakeholders.
Managers and shareholders may have different goals. They may also have different attitudes towards risk.
Information asymmetry. Managers almost always have more information than shareholders. Thus, it is difficult for shareholders to measure managers' performance or to hold them accountable for their performance.
Controlling and Minority Shareholder Relationships
Ownership structure is one of the main dimensions of corporate governance. For firms with controllin
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