A:

Agency theory and stakeholder theory are both used to understand and explain various types of relationships in business. Both theories provide a means to understand business challenges. Problems may be a result of genuine misinformation or may actually be caused by clashing business interests. These theories are often used to outline the interests of shareholders, employees, customers, the public and vendors. Many challenges that manifest within the business world as a result of incomplete information, miscommunication and conflict may be explained using these two theories. Agency theory describes the problems that occur when one party represents another in business but holds different views on key business issues or different interests from the principal. The agent, acting on behalf of another party, may disagree about the best course of action and allow personal beliefs to influence the outcome of a transaction. The agent may also choose to act in self-interest instead of the principal's interests. This may result in conflict between the two parties and may be an agency problem.

Stakeholder theory describes the composition of organizations as a collection of various individual groups with different interests. These interests, taken together, represent the will of the organization. As much as possible, business decisions should consider the interests of this collective group and advance overall cooperation. Conflict represents an erosion of these interests. Bringing these distinct groups together to reach agreement may not always be possible, so business decisions must consider each point of view and optimize the decision making to include all voices.

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