Question

what is agency theory and more examples about agency theory. what is legitimacy theory Ang give example about legitimacy theory. What is Stakeholders theory and give examples of stakeholders theory.

Answer 1

Agency theory – This theory is used to study the relationship between agents and principals. It explains and resolves issues and conflicts between business principals and their agents.

Examples: 1. Government- Public relationship: In this, public or voters are the principals and government act as their agents assigned with the task to run the country.

2. Employer – Employee relationship: Employees are recruited by the employers to perform organizational processes and therefore, act as the agents of the employers. Employers are the principals that guide and instruct their agents to perform the tasks.

Legitimacy theory – This theory is based on the idea of the existence of social contract between business and society. It supports companies in implementing and disclosing their social and environmental information.

Examples: 1. Corporate Social responsibility practices disclosed by the companies in their annual filings.

2. Disclosure of Corporate Governance practices by the firms.

Stakeholder Theory – This theory focuses on addressing business ethics and ethical norms towards its stakeholders such as consumers, investors, shareholders, public, society, creditors, etc. It underlines morals and values of managing an organization.

Examples: 1. The Body Shop has shown an example of application of stakeholder theory by adopting recycling measures and refusal to test its products on animals.