New Delhi, July 21 -- In 1976, economists Michael Jensen and William Meckling-later my professors-introduced a theory that would fundamentally reshape corporate governance. Their insight was elegant and unsettling: whenever a 'principal' hires an 'agent' to act on its behalf, the agent's behaviour may diverge from the principal's interests.

This misalignment, whether stemming from perverse incentives, bad information or mere opportunism, gives rise to 'agency costs.' These costs extend beyond direct losses, encompassing expenditures on supervision, control and contract design-all intended to narrow the behavioural gap.

In a corporate setting, for example, shareholders (or principals) entrust executives (agents) to steward their capital....