Final answer:
The given statement Conflicts of interest cause agency problems is true
Step-by-step explanation:
The statement 'Conflicts of interest cause agency problems' is true. A conflict of interest arises when an individual or organization has multiple interests, one of which could possibly corrupt the motivation or actions they take in relation to another interest.
Agency problems occur when there is a conflict of interest between the principals (such as shareholders) and agents (such as company executives), which leads to the agent acting in their own self-interest rather than in the best interests of the principals. An example of this would be a manager pursuing personal goals that are not aligned with the owners' goal of company profitability.
One common solution to mitigate agency problems caused by conflicts of interest is to align the interests of the agent with those of the principal through various forms of incentives like performance-based compensation. However, these solutions are not always perfect and can lead to additional complications that require careful management.