Owners of a business are the Principal(s) and the managers and workers are the Agents. Conflicts of interest are bound to be inherent between the business owner and his subordinates / managers / workers. This is known as the Principal-Agent Problem. The extent to which this problem is minimized, the better for the organization.

For example, in one of my prior engagements, I worked with the CEO of a Silicon Valleystart-up, who had given a lot of power to a subordinate running the offshore operations. The CEO blindly trusted this subordinate, who was a VP. The VP acted in his own self-interest, to the detriment of the whole organization.

One of the reasons the VP was not willing to work hard towards maximizing company value was because he did not have as much stock as the CEO did. When I pointed out the Principal-Agent problem to the CEO, he refused to admit that the problem was because of grossly in-equable stock compensation: in truth, the CEO did not want to part with more stock. So, the VP kept on working in his self-interest, until the CEO saw the light, and ended up offering much more stock to the VP. This move on the part of the CEO was to reduce the Principal-Agent problem.