2. Agency conflicts between managers and shareholders 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 actions being made by the firm's management. Consider the following scenario and determine whether an agency conflict exists: William and Abigail equally own and manage A New Beginning (ANB), a store that sells preowned clothing and furniture. William is responsible for ANB's back-office activities, and Abigail staffs the store and makes deliveries to customers. Both have equal decision- making 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. William, without Abigail's knowledge, used the company's bank account recently to purchase a new sports car. William has acknowledged that the car will not be used to support the business. Is this a potential agency conflict between William and Abigail? Yes; William is misappropriating some of Abigail's wealth by unilaterally purchasing a nonbusiness asset using ANB's funds. O Yes; it should have been Abigail who purchased the car. O No; William and Abigail co-own and co-manage ANB and have a partnership agreement that makes them equal, so an agency conflict cannot exist. O No; William and Abigail are both authorized to spend ANB's money, so no conflict of interest can occur