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    Theories of Corporate

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    Theories of Corporate

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    Theories of Corporate_9d9f72e21c5c8aa53c7c9e2ecb74d507

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    Theories of Corporate

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    Theories of Corporate

    Governance
    Coverage
    • Theories of Corporate Governance
    • Duties of the Board
    • Duties of the Board Chairman
    • The relationship between Executives and
    NEDs.
    Common key theories of corporate
    Governance
    The Corporate Governance is the process of
    decision making and the process by which
    decisions are implemented in large businesses is
    known as Corporate Governance. There are
    various theories which describe the relationship
    between various stakeholders of the business
    while carrying out the activity of the business.
    Common key theories of corporate
    Governance
    i. Agency Theory.
    ii. Stewardship Theory.
    iii. Stakeholder Theory.
    iv. Transaction Cost Theory
    Agency theory
    Agency theory focuses upon relationships between
    parties where one delegates some decision-making
    authority to the other. The principal would delegate
    some decision making authority to the agent who,
    in turn, would be responsible for maximizing the
    principal's investment in exchange for an
    incentive, such as a fee.
    Shareholders

    Board of Directors
    (NED)
    BCM

    Executive Directors
    (SM)
    Agency theory
    Agency theory is used to understand the
    relationships between agents and principals. The
    agent represents the principal in a particular
    business transaction and is expected to represent
    the best interests of the principal without regard for
    self-interest. This leads to the principal-agent
    problem
    Stewardship Theory
    Stewardship theory is a theory that managers, left on their
    own, will act as responsible stewards of the assets they
    control. Stewardship theorists assume that given a choice
    between self-serving behavior and pro-organizational
    behavior, a steward will place higher value on cooperation
    than defection.
     The primary focus of stewardship theory, as well as
    agency theory, is to understand how human beings can
    be motivated to contribute to the achievement of the
    goals of organizational principals
    Stakeholder theory
    • Stakeholder Theory is a view of capitalism that
    stresses the interconnected relationships between a
    business and its customers, suppliers, employees,
    investors, communities and others who have a stake
    in the organization.
    • The theory argues that a firm should create value for
    all stakeholders, not just shareholders.
    Importance of Stakeholder theory
    • Stakeholder theory demands constant and
    determined engagement from business leaders.
    • Applying the principles of stakeholder theory
    can help lead your business to a more engaged
    workforce and improved returns on corporate
    social responsibility programs.
    Transaction Cost Theory
    • Transaction cost theory (Williamson 1979, 1986)
    posits that the optimum organizational structure is
    one that achieves economic efficiency by
    minimizing the costs of exchange.
    • The theory suggests that each type of transaction
    produces coordination costs of monitoring,
    controlling, and managing transactions.
    Importance of Transaction cost theory
    • Transaction costs are important because they
    impact the amount of net return a company
    can accrue. Low transaction costs can ensure a
    company maximizes the amount it profits from
    selling goods or service
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