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Approaches to corporate governance

This table summarizes materials from Introduction: Theories of Governance (Clarke, 1 through 30) and provides a taxonomy of several different approaches to corporate governance.
Summary table
(1,1) Description (1,2) Theory of Human Nature (1,3) Owner Role (1,4) Manager Role (1,5) Corporate Ethics Focus (1,6)
Agency Theory (2,1) Managers act as agents of the corporation fulfilling the goals established by the owners / directors(2,2) Managers are rational, but self-interested beings who must be controlled from the outside(2,3) Owners are principals, that is, they originate the action and bear primary moral responsibility.(2,4) Managers are agents, that is, responsible for acting in the interest of the principals who hire them. Faithful agency implies avoiding conflicts of interests and maintaining confidences.(2,5) Compliance focus uses (1) rule-based codes, (2) systems of monitoring, and (3) punishments and rewards to motivate compliance from outside.(2,6)
Stockholder Approach (3,1) Corporation is property of stockholders who dispose of it as they see fit.(3,2) Stockholders pursue self interest. They are rational (instrumental), economic self-interest maximizers.(3,3) Owners invest in corporation and seek a return (profit) on their investment.(3,4) Managers are responsible for ensuring that owners get maximum return on investment.(3,5) Stockholders direct compliance toward manager control and external conformity to laws.(3,6)
Stakeholder Approach (4,1) Owners drop out of center focus. Corporation is run for the sake of its stakeholders.(4,2) Groups have special interests but recognize the need to integrate these. Humans possess capacity for procedural reasoning.(4,3) Owners drop to one of a group of equal stakeholders. Still advocate their financial interests but not to exclusion of other stakeholders.(4,4) Managers are meta-stakeholders. They treat stakeholders and stakes equally and integrate these to the fullest extent possible.(4,5) (4,6)
Stewardship Model (5,1) Managers act as stewards for absentee owners; oversee the operations of corporation and exercise care over them. Emotion (care) plays an equal role with instrumental rationality.(5,2) Desire and self interest are balanced out by social motives such as Rousseau's pity and Aristotle's virtues.(5,3) Owners still set cardinal objectives but they also are responsible for providing managers with a meaningful work environment.(5,4) Managers are stewards exercising care over the property of the owners in their absence. Stewardship is based on internally generated and self-imposed motives toward care.(5,5) Value-based: (1) identify and formulate common standards of excellence, (2) develop training programs to foster pursuit of these excellences, and (3) develop support structures to help reduce value "gaps."(5,6)

    Agency theory

  1. In agency theory, the owners/directors set the central objectives of the corporation. Managers, in turn, are responsible for executing these objectives in the corporation's day-to-day operations. Corporate governance consists of designing structures and procedures to control management, i.e., to keep their actions in line with director-established objectives.
  2. Managers cannot be trusted to remain faithful agents, i.e., to stay faithful to the interests and goals of the owners/directors. This presupposes a particular view of human nature. Humans are rational, egoists. They have desires and use reason to devise means to realize them. Since one desire can be checked only by another desire, this egoism is potentially without limit. Agency theory assumes that managers will divert corporate resources to pursue their own selfish ends unless checked by some system of external controls. Thus, another key element of corporate governance under agency theory is to find the most efficient systems of controls to keep manager egoism in check.
  3. The owners/directors play the role of principal in agency theory. The principal originates the action and bears primary moral and legal responsibility for it. Most of the time the principal of an action is also its executor. But there are times when the principal lacks the knowledge and skill necessary for executing the objectives he or she originates. In this case, the principal contracts with an agent. The principal authorizes the agent to act on his or her behalf. This requires that the agent remain faithful to the goals and interests of the principal. See Hobbes's Leviathan , Chapter 16 for an important historical account of the agent-principal relation.
  4. Managers are agents. Their primary responsibility is to serve as faithful executors of the goals and interests of the principals. This requires, first, that, managers are responsible for exercising their professional judgment in a competent way. Managers are also responsible for remaining faithful to the interests of their principals. To do this they must avoid conflicts of interests and maintain confidentialities (i.e., keep secrets). Agent can also range from being free (unguided by principals) to bound (tightly monitored and controlled by principals).
  5. How does ethics enter into corporate governance under agency theory? Primary emphasis is placed on compliance, i.e., enforced conformity to rules that constitute minimum thresholds of acceptable behavior. Compliance approaches develop (1) rule based codes, (2) systems of monitoring to detect violations, and (3) punishments and rewards to deter non-compliance and reward compliance. Trevino and Weaver provide an empirical analysis to the goals achieved through compliance ethics: "[4] the perception that better decisions are made because of the ethics program [5]ethical advice seeking, [6] decreased unethical behavior in the organization...[7]ethical awareness." (Weaver and Trevino, 1999: 333.)

Questions & Answers

Is there any normative that regulates the use of silver nanoparticles?
Damian Reply
what king of growth are you checking .?
What fields keep nano created devices from performing or assimulating ? Magnetic fields ? Are do they assimilate ?
Stoney Reply
why we need to study biomolecules, molecular biology in nanotechnology?
Adin Reply
yes I'm doing my masters in nanotechnology, we are being studying all these domains as well..
what school?
biomolecules are e building blocks of every organics and inorganic materials.
anyone know any internet site where one can find nanotechnology papers?
Damian Reply
sciencedirect big data base
Introduction about quantum dots in nanotechnology
Praveena Reply
what does nano mean?
Anassong Reply
nano basically means 10^(-9). nanometer is a unit to measure length.
do you think it's worthwhile in the long term to study the effects and possibilities of nanotechnology on viral treatment?
Damian Reply
absolutely yes
how to know photocatalytic properties of tio2 nanoparticles...what to do now
Akash Reply
it is a goid question and i want to know the answer as well
characteristics of micro business
for teaching engĺish at school how nano technology help us
Do somebody tell me a best nano engineering book for beginners?
s. Reply
there is no specific books for beginners but there is book called principle of nanotechnology
what is fullerene does it is used to make bukky balls
Devang Reply
are you nano engineer ?
fullerene is a bucky ball aka Carbon 60 molecule. It was name by the architect Fuller. He design the geodesic dome. it resembles a soccer ball.
what is the actual application of fullerenes nowadays?
That is a great question Damian. best way to answer that question is to Google it. there are hundreds of applications for buck minister fullerenes, from medical to aerospace. you can also find plenty of research papers that will give you great detail on the potential applications of fullerenes.
what is the Synthesis, properties,and applications of carbon nano chemistry
Abhijith Reply
Mostly, they use nano carbon for electronics and for materials to be strengthened.
is Bucky paper clear?
carbon nanotubes has various application in fuel cells membrane, current research on cancer drug,and in electronics MEMS and NEMS etc
so some one know about replacing silicon atom with phosphorous in semiconductors device?
s. Reply
Yeah, it is a pain to say the least. You basically have to heat the substarte up to around 1000 degrees celcius then pass phosphene gas over top of it, which is explosive and toxic by the way, under very low pressure.
Do you know which machine is used to that process?
how to fabricate graphene ink ?
for screen printed electrodes ?
What is lattice structure?
s. Reply
of graphene you mean?
or in general
in general
Graphene has a hexagonal structure
On having this app for quite a bit time, Haven't realised there's a chat room in it.
what is biological synthesis of nanoparticles
Sanket Reply
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
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Source:  OpenStax, Introduction to business, management, and ethics. OpenStax CNX. Aug 14, 2016 Download for free at http://legacy.cnx.org/content/col11959/1.4
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