The board of directors has the power to act on behalf of the shareholders to hire and fire the operating management of the firm. In a legal sense, the directors are "principals" and the shareholders are "agents".

Question

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In a legal sense, the directors are "agents" acting on behalf of the shareholders, who are the "principals." The shareholders own the company and elect the board of directors to act in their best interests, including making decisions about hiring and firing operating management.

The Board of Directors Has the Power to Act on Behalf