Dictionary

  • Principal

    A principal is a person who authorises an agent to act for them.

    Corporate legal scholarship often centres around the principal-agent problem as it manifests between the board of directors in a company (agents) and their principal (shareholders). The ‘problem’ arises where the agents have more information on critical matters than the principal, paired with a temptation to act in their own self-interest, which may conflict with the interest of their principal.

    However, some more modern scholarship contests the categorisation of shareholders as principals and directors as agents as incorrectly enforcing shareholder primacy, at the expense of customer outcomes and corporate social responsibility.

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