Jensen and Meckling (Michael C. Jensen)

Jensen and Meckling's model explains the relationship between owners (shareholders) and managers of a company. They describe it as an "agency problem," where managers may not always act in shareholders' best interests because they might pursue their own goals. The theory highlights how contracts, incentives, and monitoring can align managers' actions with shareholders’ interests, reducing conflicts. Essentially, it provides a framework for understanding corporate governance and the importance of incentives and oversight to ensure managers work towards maximizing shareholder value.