Agency Theory
DISCUSS THE THEORIES OF GOVERNANCE
The various popular theories of governance are agency theories, stewardship theories, resource-dependence theories, and stakeholder theories.
Agency theories
Agency theories emerge from the difference between the owners of an organization named “the principals” and the officials chose to run the company called “the agent” Lubatkin et al (2005). Agency theory explains that the purpose of the agent is distinct from that of the principals, and they are differing The hypothesis is that the principals suffer an agency loss, which is a more subordinate revenue on investment because they do not directly manage the company. Part of the revenue that they could have had if they were running the company themselves goes to the agent. Consequently, agency theories propose economic rewards that can help incentivize managers to maximize the profit of owners. Further, a board developed from the outlook of the agency theory tends to use strict control, supervision, and monitoring of the performance of the agent to protect the interests of the principals, In other words, the board is actively involved in most of the managerial decisionmaking processes and is accountable to the shareholders. A nonprofit board that operates through the lens of agency theories will show a hands-on management approach on behalf of the stakeholders.
Stewardship Theories
Stewardship theories claim that the supervisors of a company are stewards of the owners, and both groups share mutual goals. Therefore, the committee should not be too controlling, as agency theories would suggest. The board should play a supportive role by allowing managers and, in turn, improve the potential for higher representation. Stewardship theories argue for links between board and managers that include education, mentoring, and shared decision making.
Resource-Dependence Theories
Resource-dependence theories argue that a committee survives as a provider of resources to managers to help them reach organizational purposes. Resource-dependence theories support invasions by the cabinet while pushing for substantial economic, human, and uncertain supports to the officials. For example, board members who are experts can use their expertise to guide and mentor managers in a way that improves organizational review. Council members can also tap into their channels of support to bring support to the company. Resource-dependence theories recommend that most of the conclusions be made by administrators with some support of the board.
Stakeholder Theories
Stakeholder theories are based on the opinion that shareholders are not the only group with a stake in a firm or a corporation. Stakeholder theories argue that consumers, suppliers, and the neighboring communities also have a stick in an organization. They can be affected by the resolution or collapse of a company. Therefore, managers have limited obligations to assure that all stakeholders (not just the shareholders) get a decent return from their stake in the company. Stakeholder theories push for some form of corporate civil responsibility, which is a commitment to act in moral ways, even if that involves a decrease of long-term interest for a company. In that connection, the board has a burden to be the custodian of the attention of all stakeholders by assuring that corporate or organizational exercises take into record the laws of sustainability for enclosing communities.