Professional Documents
Culture Documents
Theories of Corporate Governance
Theories of Corporate Governance
Agency Theory
Stewardship Theory
Resource Dependency Theory
Stakeholder Theory
Transaction Cost Theory
Political Theory
Agency Theory
Agency theory defines the relationship between the principals (such as
shareholders of company) and agents (such as directors of company).
According to this theory, the principals of the company hire the agents
to perform work. The principals delegate the work of running the
business to the directors or managers, who are agents of
shareholders. The shareholders expect the agents to act and make
decisions in the best interest of principal. On the contrary, it is not
necessary that agent make decisions in the best interests of the
principals. The agent may be succumbed to self-interest, opportunistic
behavior and fall short of expectations of the principal. The key
feature of agency theory is separation of ownership and control. The
theory prescribes that people or employees are held accountable in
their tasks and responsibilities. Rewards and Punishments can be
used to correct the priorities of agents.
Stewardship Theory
The steward theory states that a steward protects and maximises
shareholders wealth through firm Performance. Stewards are company
executives and managers working for the shareholders, protects and
make profits for the shareholders. The stewards are satisfied and
motivated when organizational success is attained. It stresses on the
position of employees or executives to act more autonomously so that
the shareholders’ returns are maximized. The employees take
ownership of their jobs and work at them diligently.
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Stakeholder Theory
Stakeholder theory incorporated the accountability of management to
a broad range of stakeholders. It states that managers in organizations
have a network of relationships to serve – this includes the suppliers,
employees and business partners. The theory focuses on managerial
decision making and interests of all stakeholders have intrinsic value,
and no sets of interests is assumed to dominate the others