Answer: controlling shareholders

## Explanation The principal-agent conflict arises when managers (agents) may not act in the best interests of shareholders (principals). This conflict is most severe when: - **Dispersed ownership**: Many small shareholders who individually lack incentive/monitoring power - **Dispersed voting power**: No single shareholder has significant voting control **Mitigation mechanisms**: - **Voting caps (A)**: Limit voting power regardless of share ownership - actually exacerbates the problem by further dispersing control - **Controlling shareholders (B)**: Large shareholders with significant voting power have strong incentives to monitor management and ensure alignment with shareholder interests - **Insiders with large ownership (C)**: While helpful, insiders may still prioritize personal interests over general shareholder interests **Correct answer is B** because controlling shareholders provide the most effective monitoring mechanism for the specific scenario of dispersed ownership and dispersed voting power.

Author: LeetQuiz Editorial Team