Question #10

of 15 The principal-agent problem can best be described as: A) the agent may act for the well-being of the principal rather than that of the stakeholders. B) the agent may act for the well-being of management rather than that of the stakeholders. C) the agent may act for his own well-being rather than that of the principal. Maria Guadalupe Hernandez is a securities analyst with Grupo Financiero Evaluar, S.A.B. de C.V. (Evaluar). Hernández is responsible for covering eleven companies in the Consumer Staples industry. Hernandez reports to Jose Antonio Rodriguez, a senior analyst and partner with the firm. Although Rodriguez has for a long time been aware that corporate governance can have a significant impact on a firm's long-term performance, he has more recently become increasingly concerned with environmental and social factors, specifically how companies manage related resources and risk exposures. Rodriguez has noted that mismanagement of ESG factors has led to a number of widely reported corporate events that have had significant negative impacts on securities prices. In addition to focusing on corporate ownership structures and how these ownership structures may affect corporate governance outcomes, Rodriguez has asked Hernandez to also take into account ESG-related risks and opportunities that are relevant to security analysis. Rodriguez has asked Hernandez to begin incorporating environmental, social, and governance (ESG) considerations into her investment analyses, in order to provide a broader perspective on the risks and investment opportunities of the various companies' securities that she analyses.