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the governance theory that lies behind modern corporate governance reform is called agency theory and what agency theory says is that the role of the board of directors is to be the independent intermediary the broker the referee between the principals the people who contribute resources to the corporation and the agents the people who utilize those resources to get things done each of the shareholders and managers have different needs and different expectations and different interests and the role of corporate governance and therefore the board an agency theory is to arbitrate between them and to make decisions about how resources are going to be allocated to which activities and thats called agency theory you