Governance Theories Principles and Practice †MyAssignmenthelp.com

Question: Discuss about theGovernance Theories Principles and Practice. Answer: Introduction Governance theories are theories which specify rules and processes of controlling and directing companies to balance stakeholders 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. Both theories 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). Differences Agency 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). Agency theory is majorly concerned with finding solutions to problems that can come up in the relationships between an agent and the principal as a result of goals that are not aligned as well as differences in aversion to risk levels. Its central idea is that because a principal is too busy to do a certain job, he /she solicit the services of an agent who he monitors and motivates at the same time. Under this relationship, the owners of businesses are principals and managers are Agents while the Board of Directors acts as the monitors on behalf of the principal. On the other had stewardship is focused on the relationships between the success of an organization and managers. Stewards are focused on maximizing and protecting the stakeholder's wealth. Unlike Agency theory which is focused on satisfaction of the interests of the principal, Stewardship is focused on satisfaction of the interests of most stakeholders in an organization by increasing the wealth of an organization (Nicholso n Kiel, 2007).There are two notions in Agency theory, the first being that organizations are made up of two participants, shareholders and managers who have clear roles. It is also based on the notion that humans are self-centered and unwilling to let go of their interests at the expense of other peoples interest. In contrast, the behavior of a steward is collectivist and centered towards the organization. It is based on the notion that stewards are selfless and willing to let go of their interests at the expense of other organization stakeholders at all times to attain organizational objectives (Farrar,2008). Conclusion In conclusion, I believe that stewardship is the most popularly held view because of its focus on selflessness, empowerment, and facilitation, maximization and protection of stakeholders wealth and its focus on collectivism. References Farrar, J. (2008). Corporate governance: Theories, principles and practice. Oxford University Press. Monks, R. A. G., Minow, N. (2011). Corporate governance. Chichester: Wiley. Nicholson, G. J., Kiel, G. C. (2007). Can directors impact performance? A case?based test of three theories of corporate governance. Corporate Governance: An International Review, 15(4), 585-608. Yusoff, W. F. W., Alhaji, I. A. (2012). Insight of corporate governance theories. Journal of Business and management, 1(1), 52-63.