If a shareholder proxy's their vote, they give even more authority to the manager. This hardly seems fair, and it would seem to me that if they abuse this too much, shareholders may just decide to sell their investments and invest in another company. Although managers are supposed to act on behalf of shareholders and to satisfy the corporation's fixed obligations, they also have their own self-interest in mind and may act on behalf of their own well being. Agency costs are often hidden, and tend to be viewed as production costs. Yet one should not be fooled because agency costs often exist, which is of course in direct conflict with the goal of maximizing shareholder wealth.
Agency costs arise because of the separation of principles and agents in large corporations.
This often occurs when a corporation's top managers are selected and highly compensated by the company because it is felt that they, as managers, have talent and will put forth great effort to find good, worthwhile, value-creating investments. However, only managers themselves really know just how much effort they put into their jobs. Thus, if managers want they could reduce their efforts and still obtain the same amount of money. There is incentive by managers to expand the firm's size because they believe that they will then receive a bigger paycheck. Unfortunately, what is good in the short run is not always good or beneficial in the long run.