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    Agency Theory and Governance

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    Heey
    Agency theory and stakeholder theory both propose that management operates on behalf of others, but they differ in who those others are. Agency theory focuses solely on shareholders as the intended beneficiaries, while stakeholder theory argues that management should consider all stakeholders. Both theories acknowledge information asymmetry and potential conflicts of interest between principals and agents. However, agency theory has limitations as it assumes rational actors, a single-period model, and does not account for real-world complexities like multiple principals and agents. Governance aims to manage society's problems through political authority and institutional resources using principles like transparency, rule of law, and accountability.

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    Agency Theory and Governance

    Uploaded by

    Heey
    88 views18 pages
    Agency theory and stakeholder theory both propose that management operates on behalf of others, but they differ in who those others are. Agency theory focuses solely on shareholders as the intended beneficiaries, while stakeholder theory argues that management should consider all stakeholders. Both theories acknowledge information asymmetry and potential conflicts of interest between principals and agents. However, agency theory has limitations as it assumes rational actors, a single-period model, and does not account for real-world complexities like multiple principals and agents. Governance aims to manage society's problems through political authority and institutional resources using principles like transparency, rule of law, and accountability.

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    Agency theory and stakeholder theory both propose that management operates on behalf of others, but they differ in who those others are. Agency theory focuses solely on shareholders as the intended beneficiaries, while stakeholder theory argues that management should consider all stakeholders. Both theories acknowledge information asymmetry and potential conflicts of interest between principals and agents. However, agency theory has limitations as it assumes rational actors, a single-period model, and does not account for real-world complexities like multiple principals and agents. Governance aims to manage society's problems through political authority and institutional resources using principles like transparency, rule of law, and accountability.

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    Download as pptx, pdf, or txt
    88 views18 pages

    Agency Theory and Governance

    Uploaded by

    Heey
    Agency theory and stakeholder theory both propose that management operates on behalf of others, but they differ in who those others are. Agency theory focuses solely on shareholders as the intended beneficiaries, while stakeholder theory argues that management should consider all stakeholders. Both theories acknowledge information asymmetry and potential conflicts of interest between principals and agents. However, agency theory has limitations as it assumes rational actors, a single-period model, and does not account for real-world complexities like multiple principals and agents. Governance aims to manage society's problems through political authority and institutional resources using principles like transparency, rule of law, and accountability.

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    Agency Theory and

    Governance
    Bureros | Diola | Vapor
    Agency theory
    AGENCY THEORY STAKEHOLDERS THEORY

    - Focus on shareholders alone - Benefit is maximised if the


    as the intended beneficiaries business is operated by its
    of a business. management on behalf of all
    stakeholders.
    Common Feature Between AGENCY
    AND STAKEHOLDER THEORY:

    The management of the firm is believed to


    be acting on behalf of others.
    Agency Theory and Asymmetric Power

    Custodians managing in
    best interest of the owners

    All other stakeholders are


    largely irrelevant

    Managers
    Agency Theory and Asymmetric Power

    Benefit is maximised if the


    management is operated
    on behalf of all stakeholders
    and returns are divided
    appropriately.

    However, such mechanism


    which has universal acceptance
    does not exist.
    Stakeholder Theory
    SIMPLE MODEL OF AGENCY THEORY

    PRINCIPA
    AGENT
    L

    And a modernist view of the world . . .

    PRINCIPA
    L AGENT

    PRINCIPA PRINCIPA
    PRINCIPA AGENT AGENT
    L L
    L AGENT

    PRINCIPA PRINCIPA AGENT


    AGENT
    L L
    According to Scherrer and Greven (2001) , almost 10% of
    he total value of the commodities in the world
    market are produced in violation of the fundamental
    ghts of workers.

    Consequently, agency theory fails as a mechanism


    or directing managerial behaviour.
    AGENCY THEORY

    FIR M : Exists for b en ef i


    t of ow n ers
    M A N A G ER S : D ecision -m akers
    * Th e th eory is p ositive rath er th an n orm ative

    A G EN C Y R ELATIO N S H IP :
    P R IN C IPA L
    A G EN T

    * U TILITY valu e or b en ef i
    t
    INFORMATION ASYMMETRY

    MORAL HAZARD - post-decision


    consequences

    ADVERSE SELECTION pre-decision


    situation
    LIMITATIONS OF AGENCY THEORY

    Based on a single-period model


    Both Principal and Agent are rational
    utility maximisers is questionable
    Analysis is limited to 1 Principal and 1
    Agent. (not applicable to multi-agents
    & multi-principal)
    MANAGERS & BUSINESS ETHICS

    Business Ethics

    McCoy (1985) , Ethics need to be at the


    core of business behavior and that
    effective business management is based
    upon ethical behavior
    THE NATURE OF
    GOVERNANCE

    " the exercise of political authority and then


    the use of institutional resources to manage
    society's problem "

    -World Bank
    Principles of governance

    Transparency
    Rule of law
    participation
    Responsivenss
    Equity
    Efficiency and effectiveness
    Sustainability
    Accountability
    Developing a Framework for
    Corporate Governance

    UK Corporate Governance Code


    Thank you.
    (Sankyu)

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