According to agency theory, managers should primarily manage the organization to benefit whom?

In the context of agency theory, the principal-agent relationship plays a central role in understanding the behavior of managers (agents) in relation to the owners of the organization (principals), typically the shareholders. While agency theory traditionally suggests that managers are expected to act in the best interest of shareholders, the notion that some managers may prioritize their own interests over those of shareholders is a critical aspect of the theory.

The correct choice identifies this inherent conflict within agency theory, where managers, who have more information and control over the day-to-day operations of the firm, might make decisions that benefit themselves, such as through higher compensation, job security, or personal benefits, rather than strictly focusing on maximizing shareholder value.

This choice reflects a real-world scenario often discussed in organizational behavior and management literature, emphasizing the potential for self-interest to influence managerial decisions.

In various organizational structures, while the ideal might be to align managers' decisions with the welfare of shareholders or a broader set of stakeholders, agency theory acknowledges the possibility of managers prioritizing personal gains, thus providing a nuanced understanding of corporate governance dynamics.