7. Agency conflicts between managers and shareholders Aa Aa 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 business, 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 shareholders. This usurping 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 Daniel and Ashley equally own and manage A New Beginning (ANB), a store that sells preowned clothing and fumiture. Daniel is responsible for ANB's back-office activities, and Ashley 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. Daniel, without Ashley's knowledge, used the company's bank account recently to purchase a new sports car. Daniel has acknowledged that the car will not be used to support the business. Is this a potential agency conflict between Daniel and Ashley? No; Daniel and Ashley co-own and co-manage ANB and have a partnership agreement that makes them equal, so an agency conflict cannot exist. O Yes; it should have been Ashley who purchased the car No; Daniel and Ashley are both authorized to spend ANB's money, so no conflict of interest can occur. O Yes; Daniel is misappropriating some of Ashley's wealth by unilaterally purchasing a nonbusiness asset using ANB's funds