Why is there an agency relationship between managers and shareholders? There is no relationship between managers and shareholders. This is referred to as a (free) agent relationship. Shareholders elect the Board of Directors who appoint the senior management: thus, managers should be working for the shareholders. In a free society, both managers and shareholders of a firm should be free to act in their own best interests: they are agents for themselves. O Shareholders should elect a Board of Directors that works in the best interests of managers; the shareholders are agents for managers