Remember, 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 principal. In large corporations, these conflicts most frequently involve the enrichment of the firm's executives or managers (in the form of money and perquisites or power and prestige) at the expense of the company's shareholders. This usurping and reallocation of shareholder wealth is most likely to occur when shareholders do not have sufficient information about the decisions and actionsbeing made by the firm's management Consider the following scenario and determine whether an agency conflict exists: Jacob owns Jacob's Tantalizing Tees, a T-shirt shop in a small college town in Virginia. With a staff of three part-time employees, Jacob operates the business in accordance with his personal goals, dreams, and capabilities. Does Jacob have an agency conflict to deal with? a. Yes; as both the owner and operator of Jacob's Tantalizing Tees, Jacob has created the necessary agency relationship through which an agency conflict can exist. b. No; by having part-time, as opposed to full-time, employees, Jacob is prevented from experiencing an agency conflict. c. Yes; there is always an inherent conflict of interest between owners and operators (managers). d. No; as both the owner and operator of Jacob's Tantalizing Tees, Jacob has not created the necessary agency relationship through which an agency conflict can exist.

In every business shareholders invests their money and hire some great potential managers so that the business runs smooth even without their presence.

The shareholder is the owner, and that the manager is the employee who works on the direction of shareholders. Accordingly there is an inbuilt relationship of an agent and principal.

Agent = managers

Principal = Shareholders

And there is an inherent risk as the managers might not agree to certain terms of shareholders and vice-e-versa. But even both of them cannot work without each other.