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Corporate Governance and Stewardship - Doc

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1CORPORATE GOVERNANCE AND STEWARDSHIPAbstractThe aim of this study to understand the different theories associated with corporategovernance like agency theory, stakeholder theory and resource-dependency theory. Thesetheories are very important to understand the different ways in which an organization can bemanaged within set rules which helps in the maximization of profit of the organizations. Thisessay also goes into understanding one of the most important theories of corporategovernance which is the stewardship theory. This theory is used in various organization inrecent times. This essay will help understand the effect of stewardship theory on non-profitand for-profit organizations and how it has contributed to its effectiveness. Finally, the studywill analyse the relation between the leader’s values and the effect that it has on the corporategovernance of the organization.
2CORPORATE GOVERNANCE AND STEWARDSHIPIn recent times, the corporate world has become a dominant sector of the society.Their reach have extended globally and influenced every nook and corner of the world. Withthe increase in globalization, companies are able to penetrate more markets globally.Government are not always able to control these corporations because of their power anddominance around the world. This where corporate governance comes into existence, to gaincontrol over the changes in the environment globally. Corporate governance is a fixed set ofguidelines that is used in governing the association between different organizations,stakeholders and shareholders (Tricker & Tricker, 2015). Corporate governance is needed tocontrol the actions of an organization and to also to ensure that a proper process is followedto achieve the objectives of that organization. Corporate Governance stands on three pillarswhich are transparency, security and accountability. All of these pillars are very important inmanaging an organization and maintain good connection with the stakeholders of thecompany. These stakeholders are the shareholders, board of directors, employees and themanagers of the company. This essay will elucidate on three theories of corporate governanceand how those theories have contributed to the effectiveness of an organization. It will alsoshed light on one of the theories of corporate governance that is the stewardship theory andits contribution to the effective governance of different for-profit and non-profitorganizations. The further paragraphs will also highlight the relationship of the values andbeliefs of a leader to the effective governance of an organization.The theories of corporate governance that are effective for managing an organizationare agency theory, stakeholder theory and resource-dependency theory. The economic andinstitutional agency theory was proposed by the scholars Stephen Ross and Barry Mitnickrespectively. Agency theory is explained as the relation between the principals and the agents(Wheelen et al., 2017). The principals are the stakeholders, whereas, the agents are themanagers and directors. This theory says that the principals should delegate work to the
3CORPORATE GOVERNANCE AND STEWARDSHIPagents that they hire to do work on their behalf. Decisions are taken by the agents in place ofthe principals and these decisions should be in benefit of the principal. However, it mayhappen that those decisions may not be in favour of the organization. There are various issuesthat come to light with this theory. Firstly, there arises a conflict of interest between theagents and the principals as both their goals are different from each other. There may bemany instances where the agent might work in their own interest rather than that of theprincipal. This might lead to several issues between the agents and principals which can harmthe organization to a great deal. Agents often hide many information from the principalswhich might hurt the interest of the organization and cause great financial loss. This makesthe stakeholders unsure about the work that the agents are doing (Raelin & Bondy 2013).However, it is the job of the principals to ensure that the agents continue their work in aproper manner and keeping their interests in mind. For this there are certain things that theprincipals should do. Agency theory can be used to create incentives for the agents so thatthey become motivated to do their work. These incentives can help in urging the agents towork in interest of the principal and communicate in a clear way regarding any informationabout the organization. Any kind of incentive that can prove to be negative for the agents andthe company should be eradicated and replaced with motivating incentives to ensure goodquality work. The stakeholder theory was developed by Freeman in the year 1984. Thestakeholder theory is a theory of corporate governance which states the effect that any kind ofaction in the organization has on the stakeholders of the corporation (Verbeke & Tung, 2013).This theory states that the managers and directors should always work in the interests of thestakeholders and thereby reducing any kind of conflict that might arise between the managersand the stakeholders. Unlike in that of agency theory, the managers are not serving theinterests of the stakeholders but are trying to build a relationship with the chain ofstakeholders who are the suppliers, creditors, auditors, customers and the public who are
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