ABSTRACT
The main application of agency theory within the strategy field focuses on corporate governance and how an organization's management structure should be organized for maximum performance. There is a somewhat roundabout reasoning why top managers focus on shareholder value. They do so because this is the way in which their terms of employment are very often set up to deal with the agency problem. Although corporate governance is the primary application of agency theory, there are also other areas where a principal–agent relationship can be recognized. The first item to consider is whether ownership and management are separate. If this is not the case, the corporate governance agency problem does not exist. The concept of shareholder value is probably the most contentious strategy theory in existence. Agency theory in general recognizes that people's motivations, expressed as utility gains, cover a range of things.
