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What are the Responsibilities of an Agent? [No. 86]

Agents oversee the operations of a corporation, but their responsibilities extend beyond that. Professor Todd Henderson explains that agents have a duty to always act in the best interest of the company, regardless of their own preferences. An agent cannot use their authority for personal gain or influence. https://youtube.com/watch?v=FjB_F_KOqGI


Agents have to act in the interest of their principals. These won't always be clear, and so that's why there's a whole body of law called agency. If you look back at the first year curriculum from law schools, maybe 50 years ago, agency would've been a whole semester class. It's not so much a focus anymore in large part because the idea of agency rules and agency costs arise in other contexts like in the corporate law context. But in general, agents have to serve the interests of their principals. And agency cases involve disputes in which that was in doubt. Maybe the agent is accused of being selfish, maybe the agent is accused of exceeding their authority, maybe the agent is accused of being sloppy. And those generate disputes about whether or not the principal will be liable for the actions of the agent or the agent through their actions is responsible to the principal. I'll give you an example. There was a case from the 1940s called Reading versus Regam. In this case, a officer, I think maybe a sergeant in the British Military, was stationed in Cairo. The military looked in his apartment and foot locker and found thousands and thousands and thousands of pounds and was curious where this money came from. Turns out this sergeant in the British Military was using his position in the military, the authority that his uniform brought, to pave the way for smugglers who wanted to move illicit goods in World War II era, Cairo. And the British Military took this money and said, "You got this money using our authority, using your British Military position as the way of earning this money. And the sergeant sued and said, "No, I got this money on my own. I was providing escort services for these smugglers and you have to give it back to me." And the court establishes a pretty strong rule that the sergeant can't keep the money. That the only reason the sergeant was in the position that he was in was because he was an agent of the British crown. Wearing the uniform, he had to do the interests and serve the interests of the British government, not his own personal interests. He couldn't use his authority as an agent of the British government to line his own pockets. Now, this seems pretty far removed from a typical corporate law case, but now just imagine you're on the board of directors of a corporation and you're using that position to line your own pockets. You're using your authority as a director of General Electric or Apple Computer to serve your narrow interests and not the interests of the corporation that you're a board member of. Agency and corporate law principles tell us you can't do that. All of your actions as a director of a corporation or officer of a corporation are in the service of shareholders and the corporate entity, they can't be in the service of your own interests.

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