Ethics and Agency Theory

Book excerpt: Agency theory involves what is known as the principal-agent problem, a topic widely discussed in economics, management, and business ethics today. It is a characteristic of nearly all modern business firms that the principals (the owners and shareholders) are not the same people as the agents (the managers who run the firms for the principals). This creates situations in which the goals of the principals may not be the same as the agents--the principals will want growth in profits and stock price, while agents may want growth in salaries and positions in the hierarchy. The fourth volume in the Ruffin Series in Business, this book explores the ethical consequences of agency theory through contributions by ethicists, economists, and management theorists.