What is an agency relationship, and what is an agency conflict? How can agency conflicts be reduced in a corporation Solution What is an agency relationship Agency relationships develop when a principal hires an agent to perform some service or represent the company. what is an agency conflict? An agency conflict arises when the agentâ€™s interests and behaviors are at odds with those of the principal. How can agency conflicts be reduced in a corporation A gency conflicts can be reduced through the following three mechanisms: management compensation, control of the company, and the board of directors. .