Question

What are the Theories and Philosophy’s of Corporate Governance, and how do they differ?

a. Agency Theory

b. Stewardship Theory

c. Transaction Cost Theory (Coase)

d. Resource Dependency Theory

e. Managerial Hegemony Theory

f. Class Hegemony Theory

Answer 1

Answer

a. Agency Theory

Agency theory explains the relationship between the agents and principals in business. This theory is mainly concerned with resolving problems and disputes that exist in agency relationships due to different aversion levels to risk and unaligned goals.

A board is estabilished under this theory which is responsible for supervision, monitoring of performance of agents , exercising strict controls in order to protect the interests of the principals

b. Stewardship Theory

In stewardship theory, Managers are held responsible for all assets they control. it specifies certain mechanisms, those mechanisms reduces the agency losses including the level of benefits, compensation and manager incentive schemes by offering shares with financial interest of executives or by rewarding them financially to motivate them for better performance.

c. Transaction Cost Theory (Coase)

Transaction cost theory tries to explain why companies exist, and why companies expand or source out activities to the external environment. The transaction cost theory supposes that companies try to minimize the costs of exchanging resources with the environment, and that companies try to minimize the bureaucratic costs of exchanges within the company. Companies are therefore weighing the costs of exchanging resources with the environment, against the bureaucratic costs of performing activities in-house.

The theory sees institutions and market as different possible forms of organizing and coordinating economic transactions. When external transaction costs are higher than the company's internal bureaucratic costs, the company will grow, because the company is able to perform its activities more cheaply, than if the activities were performed in the market. However, if the bureaucratic costs for coordinating the activity are higher than the external transaction costs, the company will be downsized.

d. Resource Dependency Theory

-According to this theory board act as resource to provide financial, human and intangible support to the executives.

-The primary objective of this theory is to improve organizational performances and giving greater autonomy to the executives to make most of the decisions with the approval of the board.

e. Managerial Hegemony Theory

Both managerial and class hegemony theory are allied to resource dependence theory in thesense that all three share the concept of people providing access to resources.In contrastto resource dependence theory’s focus on the company, however, class hegemony theory isa Marxist-based concept that conceptualises the upper class or business elite as a groupmanipulating the governance of corporations to perpetuate its power base.

Managerial hegemony theory is similar to class hegemony theory in that the governancesystem and board is seen as the tool of management.It argues that the real power incorporate governance lies with management and that they can take advantage ofshareholder weakness to pursue self-interest.

f. Class Hegemony Theory

Class hegemony theory isa Marxist-based concept that conceptualises the upper class or business elite as a groupmanipulating the governance of corporations to perpetuate its power base.

The governancesystem and board is seen as the tool of management.It argues that the real power incorporate governance lies with management and that they can take advantage ofshareholder weakness to pursue self-interest.