ACCA Strategic Business Leader (SBL) Practice Exam

How should one approach answering an agency question in business?

1. By focusing on personal accountability

2. By analyzing only the financial performance

3. By examining the relationships between directors, boards, and stakeholders

4. By assessing the company's marketing strategies

The correct answer is: By examining the relationships between directors, boards, and stakeholders

The best approach to answering an agency question in business involves examining the relationships between directors, boards, and stakeholders. Agency theory primarily deals with the conflicts that can arise between principals (such as shareholders) and agents (like company executives or directors) due to differing interests, information asymmetries, and the challenges of monitoring and controlling actions. Understanding these dynamics is crucial to addressing agency issues because it helps identify areas where misalignment might occur and how to align the interests of both parties. This perspective allows one to explore governance structures, accountability measures, and the roles of different stakeholders in ensuring that the organization operates in a manner that reflects the interests of its owners. By focusing on the interrelationships among stakeholders, one can develop strategies that mitigate agency problems and promote better decision-making practices within the organization. Focusing solely on personal accountability, like the first option suggests, does not provide a comprehensive understanding of the larger system of relationships involved in agency theory. Analyzing only financial performance, as suggested in the second option, ignores the qualitative aspects that can influence agency relationships, such as trust and communication. Similarly, assessing a company's marketing strategies overlooks the significance of governance and stakeholder dynamics that are central to agency theory.