Agency theory
In this lesson, you'll learn what agency theory is and why it matters for understanding corporate governance in SBL. Agency theory examines the relationship between principals (shareholders) and agents (managers or directors), where the principal delegates authority to the agent to act on their behalf.
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In this lesson
- 0:00 Welcome to agency theory lesson
- 0:35 Agency relationship and corporate governance
- 1:19 Principal and agent roles explained
- 2:00 Goals conflict between principals and agents
- 3:12 Agency theory and self-interest problems
- 4:04 Information asymmetry in agency relationships
About this lesson
The core issue is that principals typically aim to maximise shareholder wealth, whilst agents pursue personal gain—creating a potential conflict of interest that corporate governance must address. You'll explore how this separation between ownership and control creates the agency problem. When principals and agents have different objectives, the agent's decisions may not align with what benefits the principal. The lesson shows how information asymmetry plays a role too: agents have access to detailed business information that principals don't, which can widen the gap between their interests and decisions. Understanding agency theory is essential for SBL because corporate governance is consistently examined and directly relevant to analysing case study companies. This foundation helps you recognise governance structures, evaluate management incentives, and assess how organisations can align agent behaviour with principal objectives—all critical skills for the Strategic Business Leader exam.
Duration: 5m
Transcript
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