Agency Theory

Agency theory, also known as the agency dilemma or the agency problem, explains and resolves the problem in business relationships between principals and agents where, principals may refer to shareholders, whereas agents may refer to company executives. The shareholders depends on the company executives to make decisions that will positively affect the investments of shareholders in these instances. 

Investor relationship management software are often used by agents to manage relationships with their investors. The relationships between parties could be either between shareholders and company executives or investor and fund manager. 

Shareholders are principals, and company executives are agents in shareholders and company executives types of agency. The decisions are made by company executives that impact investments and financial position of shareholders. The investor is the principal, and the fund manager is the agent in investor and fund manager types of agency. The fund manager has the decision-making authority to allocate funds accordingly. 

The problem between the principal and agent happens when conflicts and misalignments arise between parties. Differing interests between the principal and agent, poor decision-making by an agent that doesn't lead to a profit for the principal, lack of communication, broken confidentiality agreements and lack of trust between the principal and agent are few reasons for these conflicts and misalignments.