Agency conflicts between managers and shareholders

emember, an agency relationship can degenerate into an agency conflict when an agent acts in a manner that is not in the best interest of his or her incipal. In large corporations, these conflicts most frequently involve the enrichment of the firm's executives or managers $($in the form of money and erquisites or power and prestige$)$ at the expense of the company's shareholders. This usurping and reallocation of shareholder wealth is most likely occur when shareholders do not have sufficient information about the decisions and actions being made by the firm's management.

onsider the following scenario and determine whether an agency conflict exists:

Alexander and Akiko equally own and manage A New Beginning $($ANB$),$ a store that sells preowned clothing and furniture. Alexander is responsible for ANB's back$-$office activities, and Akiko staffs the store and makes deliveries to customers. Both have equal decisionmaking authority and, under the terms of their partnership agreement, both are prohibited from making personal purchases using company funds without prior approval of the other partner. Alexander, without Akiko's knowledge, used the company's bank account recently to purchase a new sports car. Alexander has acknowledged that the car will not be used to support the business.

S this a potential agency conflict between Alexander and Akiko?

Yes; Alexander is misappropriating some of Akiko's wealth by unilaterally purchasing a nonbusiness asset using ANB's funds.

No; Alexander and Akiko co$-$own and co$-$manage ANB and have a partnership agreement that makes them equal, so an agency conflict cannot exist.

No; Since Alexander acknowledged that the car would not be used to support the business, no agency conflict can arise.

No$-$Alexander and Akiko are both authorized to spend ANB's money, so no conflict of interest can occur.