Corporate Governance Theories and their Impact on Development

CORPORATE
GOVERNANCE
QIESTIONS

TABLE OF CONTENTS
Qusetion1. .......................................................................................................................................3
The main theories that influence development of the corporate governance..............................3
Question2 ........................................................................................................................................6
“Good corporate governance can improve corporate performance” Justify................................6
REFERENCES..............................................................................................................................11

Qusetion1.
The main theories that influence development of the corporate governance.
The corporate governance theories explains the concept where they monitor the hazards and
develops the different activities to understand how the business runs. In general, there are various
theories of the corporate governance which also introduces the challenges of governance of firms
and organization. There are six kinds of theories which influence the development which are
agency, stakeholder, steward, transactional, political and resource dependency theory. In this
report, here performing the major theories which influences the development of the corporate
governance.
Agency Theory : The concept of agency theory introduces the relationship between the business
principle and their agents who also explain and solves the issues and obstacle. In this context, the
principal can be said to the “shareholder of a company” and agents as “directors of the
company”. From this mentioned concept it is easy to understand the relationship. Accordingly,
the principal hire and recruit the agent people to perform the work procedure(Nasr, and Ntim,
2018). In the work process, shareholder expects from the agents to create and put the appropriate
decision in the best interest of principal. In this theory, it is not necessary that an agent will only
make the decision to profit the company and principal. The agents may be composed the self-
interest opportunism behaviour and follow the ideologies which will benefit themselves.
Accordingly, from this inappropriate behaviour they fall the expectation of the principal or
shareholder. Performing the most common and revenant example from which this theory will be
understood in the effective manner. During the elections, the political parties and representative
promise to voters and public that they will maximize the profits and their interest in the effective
manner. However, the elections get over and a person who has elected as a government
representativeness they cheated the candidates who make them win and elected them for their
benefits (Nwafor, and Sibanda, 2019). Instead of providing them best interests they follow the
duties and work process which effect themselves. In the example, the voters act as principal and
who elect the representative as their agents.
Stakeholder Theory :
The stakeholder term introduces the accountability of the management to a wide range of
stakeholders. The term stakeholder includes the employee, production, investors, political

parties, suppliers, trade associations, government and communities. All these are the effective
part of the organization. This theory mainly focus on the managerial decision-making process
and helps them to provide the equal benefit and interest. The main objective of this theory is to
provide the value for the stakeholders and not only to the shareholders. The stakeholder is the
viviparity of the organization and have a right to take interests from the shareholders. The
management or shareholders have a responsibility of decision-making process in which theory
are required to generate and create an equal value of sets to their stakeholders. For example : A
food industry company providing the food stuff to their consumer which requires the proper
management of manufacturing, supplier, and the who will make a purchase (Barante, and Arasa,
2018.). The food company who is focusing on their stakeholders and providing the equal interest
of the profit will aid an organization to provide the best quality and services to the people from
which they will be able to approach the consumer by their effective designs and structure.
Looking at one more example, the organization who is a retail company of a clothing and
dressing then the company requires the numerous department and worker to perform the work
activates. The work process will only be done by the machinery or the labour but for running the
machines equipments also requires the stakeholder to look out for the manufacturing and
services. The stakeholder is the essential part of the organization and it can be of any
departmental company and business requires stakeholder to drive and run their business in the
stable platform. From thee activities only the shareholder will obtain the maximum benefit and
develop in the particular areas. This example is illustrated the value and importance of
stakeholder theory.
Stewardship Theory : The steward theory states the concept where steward secure and protect
the shareholder wealth though the organization performance (Iswaissi, and Falahati, K2017). The
term “steward” means to be company executive or manager who are working for the
shareholders and protect and enhance the organization growth by providing them maximum
profits and benefits. It has been known that an individual who feels motivated they can generate
the maximum profit to the shareholder. Similarly, the executive and managers are satisfies when
they feel motivated and courageous at the workplace then they will be able to sustain the growth
of the organization. Providing the employee an accurate motivation from the shareholder then
they can be able to put more efforts and maximize the returns. The motivation can be intrinsic
and extrinsic which helps the executives to put the efforts and hard work which drives the growth