Abstract

Conventional agency theory typically focuses on a unidirectional problem, in which an agent behaves opportunistically against the interests of a principal. Yet, this conceptualization is too limited to fully describe all aspects of principal–agent relationships. This article presents a more comprehensive framework explaining a potential three-directional problem—that is, agents behave opportunistically against the interests of principals, principals behave opportunistically against the interests of agents, and relationships between agents and principals representing confluence of interests affect the interests of third-party stakeholders. The article provides evidence of these problems, describes their unique characteristics, and outlines implications for society. It concludes with a discussion focusing on the implications of the proposed framework for purported governance solutions, the ongoing debate between shareholder and stakeholder views of the firm, and business practices.