In your business, do you feel like there is a constant tug of war between your managers and you or between the managers and the Board of Directors? Managers recommend one course of action and owners recommend another? If you notice that this is happening in your company, then you have an agency problem with associated agency costs in your business firm.
What is the agency problem? What are agency costs? Essentially, they are operating expenses. Just one more cost of doing business, but hard to quantify costs of doing business. They involve monitoring by shareholders to make sure managers are doing their job. Imagine the Wall Street Crisis of 2008. Don't you imagine there was an agency problem there? Certainly, the shareholders of large banks that failed didn't actually want to fail or almost fail, but management got away from them.
Read on in the article for further information.