One method that businesses use to overcome the principal-agent problem is to:
A) not require the board of directors to oversee management.
B) not reward executives and managers who make poor decisions.
C) not give stock options to management.
D) not give employees a stake in the business.

Question

Quizplus · Accepted Answer

The principal-agent problem occurs when the interests of the principal (owners or shareholders) and the agents (executives or managers) do not align. Rewarding executives and managers who make poor decisions would exacerbate this problem, so not doing so helps to mitigate it.

One Method That Businesses Use to Overcome the Principal-Agent Problem