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Report on Corporate Governance Theories

   

Added on  2020-05-04

4 Pages706 Words126 Views
CORPORATE GIOVERNANCE THEORIES1Strategic ManagementInstitutional AffiliationNameDate

CORPORATE GIOVERNANCE THEORIES2IntroductionGovernance theories are theories which specify rules and processes of controlling and directing companies to balance stakeholder’s interest. Examples of such theories are agency and stewardship theories(Farrar,2008).This report compares and contrasts the two theories regarding their characteristics and features and identifies the most popular among them Similarities The phenomenon in both theories is concerned with the relationships that exist between a manager and a principal and the outcome of their relationship on organization performance. Boththeories are used in the business world to facilitate an understanding of the various relationships existing in business as well as various business challenges by outlining the interests of stakeholders including employees, shareholders, vendors, customers and members of the public(Yusoff & Alhaji, 2012).DifferencesAgency theory is founded on the belief that managers are likely to make decisions based on self-interest at the expense of shareholders if they are left unattended to. On the other hand, the main assumption of stewardship theory is that an agent can act on behalf of the principal if they are given authority and responsibility. It considers managers as good stewards with the capacity to act in the best interest of the principle. Stewardship theory, therefore, focuses on facilitation and empowerment unlike Agency theory which is centered on control and monitoring of the agent (Monks & Minow, 2011).

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