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Corporate Governance Perspectives: 2.1 The Agency Concept

The document discusses various perspectives on corporate governance. It describes corporate governance as the system by which companies are directed and controlled, with boards of directors responsible for oversight. While companies aim to achieve performance goals, they must also adhere to standards and regulations. Corporate governance codes aim to balance performance and compliance. The agency concept is the main driver of corporate governance, with directors overseeing managers and staff to implement corporate strategy, set targets, authorize budgets, and report performance back to shareholders. Directors have a duty to protect the business and account for their activities under the stewardship concept.

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Christlyn Joy Baral
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77 views

Corporate Governance Perspectives: 2.1 The Agency Concept

The document discusses various perspectives on corporate governance. It describes corporate governance as the system by which companies are directed and controlled, with boards of directors responsible for oversight. While companies aim to achieve performance goals, they must also adhere to standards and regulations. Corporate governance codes aim to balance performance and compliance. The agency concept is the main driver of corporate governance, with directors overseeing managers and staff to implement corporate strategy, set targets, authorize budgets, and report performance back to shareholders. Directors have a duty to protect the business and account for their activities under the stewardship concept.

Uploaded by

Christlyn Joy Baral
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 2

CORPORATE GOVERNANCE
PERSPECTIVES
 It has been described by Sir Adrian Cadbury as the way organizations are directed and
controlled. This simple statement contains many profound elements including the
performance/conformance argument.

 Structure of rules, practices and processes used to direct and manage a company.

 Corporate Governance is the system by companies are directed and controlled. Boards of
Directors are responsible for the governance of their companies. The shareholder’s role in
governance is to appoint the directors and auditors and to satisfy themselves that an
appropriate governance structure is in place

 An organization’s main task is to achieve the level of performance that it was established
for. But at the same time, an organization must adhere to all relevant standards, rules,
laws, regulations, policies and expectations that form a framework within which this
performance must be assessed, which in turn may cause many difficulties in the real
world.

 Corporate governance codes and policies have come to be relied on to re-establish the
performance/conformance balance to ensure integrity, openness and accountability.

 Animation Corporate Governance (English) ; MBA 101 Corporate Governance, Agency


Theory

2.1 The Agency Concept

The main driver for corporate governance is based on the agency concept. Here corporate bodies
are overseen by directors who are appointed by the owners, i.e. the shareholders. The directors
formulate a corporate strategy to achieve set objectives and meet market expectations, and in
turn, employ managers and staff to implement this strategy
- Directors oversee their managers while managers run
the business through the other employees.
- To achieve published objectives, the directors set
targets for their management team, authorize a budget
and then establish a mechanism for measuring
performance.
- To achieve published objectives, the directors set
targets for their management team, authorize a budget
and then establish a mechanism for measuring
performance. All business activity feeds into the
accounting system and the directors report the results back to their shareholders in
the annual report on performance and accompanying final accounts. Shareholders
check the overall performance and financial results each year and ensure that their
investment is intact. They have a right to any dividends and may well see a
growth in the value of their investment through strong share prices. Meanwhile,
the directors have a duty to take all reasonable steps to protect the business and
account for their activities.

The STEWARDSHIP CONCEPT means directors owe this responsibility to the parties who
have a vested interest in the organization.

There are two further mechanisms that need to be included in our model to reflect both the
performance and accountability dimensions that are important in agency theory.

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