the agent. Therefore, the agent's acceptance of these costs may produce a higher utility outcome for both parties. In practice, bonding costs are nearly impossible to measure. The costs that arise where the agent acts contrary to the best interests of the principal. These are referred to as 'residual costs'. In corporate governance The relationship between a company's shareholder and the board of directors is generally considered to be a classic example of a principal–agent problem. The problem arises because there is a division between the ownership and control of the company. The shareholders appoint the board to manage their asset but often lack the time, expertise or power to directly observe the actions of the board. In addition the shareholders may not be placed to understand of the repercussions of the board's decisions. As such, the board may be capable of acting in their own best interests without the oversight of the shareholders. As is noted by Adolf A. Berle, in his now famous work on company law, this issue is exacerbated in companies where each shareholders has only a small interest in the company. Such diversity in shareholder interests makes it unlikely that any one shareholder will exercise proper control over the board. The classic case of corporate agency cost is the professional manager—specifically the CEO—with only a small stake in ownership, having interests differing from those of firm's owners. Instead of making the company more efficient and profitable, the CEO may be tempted into: empire-building (i.e. increasing the size of the corporation, rather than the size of its profits, "which usually increases the executives' prestige, perks, compensation", etc., but at the expense of the efficiency and thus value of the firm); not firing subordinates whose mediocrity or even incompetence may be outweighed by their value as friends and colleagues; retaining large amounts of cash that, while wasteful, gives independence from capital markets; a maximum of compensation with a minimum of "strings"—in the form of pressure to perform—attached. management may even manipulate financial figures to optimize bonuses and stock-price-related options. Information asymmetry contributes to moral hazard and adverse selection problems. Mitigation of Agency Costs Much of modern company law has evolved in order to limit the effects of agency costs. Company directors in common law jurisdictions owe fiduciary duties to their company. Notably these duties are not owed to the shareholders, but to the company. This is because