Question

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
A. articles of incorporation
B. corporate breakdown
C. agency problem
D. bylaws
E. legal liability

Answer 1

Answer: The correct answer is "C. agency problem".

Explanation: The agency problem is defined as a conflict of interest between the corporate shareholders and the corporate managers.

Agency theory is a business technique whereby shareholders (the principal) ask another person (the agent or manager) to perform a certain job on their behalf. For an agency relationship to exist, the agent must be authorized by the principal to sign, modify or cancel contracts with third parties on behalf of the principal.

The agency problem basically consists in solving how the principal can ensure that the agent performs the action optimally for his (principal's) interests, and not his own.