Final answer:
In the principal-agent framework, option D is correct: Shareholders are the principals and managers are the agents. Shareholders invest in a company and thereby have ownership, whereas managers are employed to run the company on the shareholders' behalf.
Step-by-step explanation:
In the principal-agent framework, the correct answer is D. Shareholders are the principals and managers are the agents. Shareholders or stockholders own shares of a corporation and are entitled to the maximum return on their investment. Managers are hired by shareholders to operate the company on a day-to-day basis and make decisions that align with the shareholders' interests. This creates a dynamic where shareholders (principals) hire managers (agents) to perform tasks on their behalf, including the pursuit of the company's strategic goals that should ultimately lead to profitability.
Shareholders typically choose company managers through a democratic process involving voting rights proportional to their shares during company meetings, such as the annual general meeting (AGM). In contrast, stakeholders encompass a broader group of individuals or entities invested in the welfare of the company, not just through capital investment but through other forms of involvement as well.