Final answer:
In a corporation, the "principal" in the agency relationship is the collective group of shareholders. They vote for the board of directors, who oversee the management of the corporation, but the daily operations are managed by the CEO and top executives.
Step-by-step explanation:
The "principal" in the agency relationship of a corporation is the collective group of shareholders who own the company. They exercise their control and interests by voting for a board of directors, who are then tasked with overseeing management and making high-level decisions for the corporation.
The CEO and other top executives run the firm daily, but they are ultimately accountable to the board of directors and the shareholders. A shareholder holding 10% or more of any class of voting stock would be a significant shareholder but not the principal. A company engineer is an employee of the firm and not part of the agency relationship at the ownership or board level.
Public companies are owned by shareholders who buy stocks, which represent ownership of the firm. For example, corporate giants like IBM, AT&T, and Microsoft have millions of shares of stock, and no single individual usually owns a majority.
Therefore, the true principals are the shareholders, who might be thousands or millions in number, and not a single entity like a CEO or a 10% stockholder. Although in practice, top executives wield considerable influence over who is nominated to the board of directors, it is the shareholders who have the final say at elections.