Youtube Video Link -
https://youtu.be/dx28fuD_D4w
Stewardship Theory, developed by Donaldson and Davis focuses on understanding the existing relationships between ownership and management of the company.
Under Stewardship theory managers are considered as Stewards which means someone who is responsible to protect and act in the best interest of shareholders.
It is opposite to agency theory which mentions the conflict of interest between managers and shareholders.
Managers are considered as committed to business, responsible, working towards accomplishment of mission and vision of organization.
They are the one who brings out collectivism in organization and align everyone’s objective for the growth of business.
Focuses on recognizing various groups in organization and empowers them with motivation and delegation of work.
Balances all stakeholders and add significant value to organization reputation.
There exist a strong relationship between managers and success of the company.
Stewards tries to maximize shareholders wealth by constantly increasing profitability and efficiency of business.
More control and restrictions over managers may lower their motivation and hence turn them out unproductive since they take most of the strategic decisions for growth of business in long run.
Thank you for Watching
Subscribe to DevTech Finance
Youtube Video Link -
https://youtu.be/dx28fuD_D4w
Stewardship Theory, developed by Donaldson and Davis focuses on understanding the existing relationships between ownership and management of the company.
Under Stewardship theory managers are considered as Stewards which means someone who is responsible to protect and act in the best interest of shareholders.
It is opposite to agency theory which mentions the conflict of interest between managers and shareholders.
Managers are considered as committed to business, responsible, working towards accomplishment of mission and vision of organization.
They are the one who brings out collectivism in organization and align everyone’s objective for the growth of business.
Focuses on recognizing various groups in organization and empowers them with motivation and delegation of work.
Balances all stakeholders and add significant value to organization reputation.
There exist a strong relationship between managers and success of the company.
Stewards tries to maximize shareholders wealth by constantly increasing profitability and efficiency of business.
More control and restrictions over managers may lower their motivation and hence turn them out unproductive since they take most of the strategic decisions for growth of business in long run.
Thank you for Watching
Subscribe to DevTech Finance
Role of board of directors -Corporate GovernanceRehan Ehsan
This Presentation states the role of board of directors in respect of corporate governance of Pakistan. Reviewing this clear the concept of their legal role in Pakistan.
This presentation talks about meaning of Corporate Governance, models of corporate Governance. It includes Anglo-American, German, Japanese Model of governance.
Go through to know more about the CG & Business Models.
Role of board of directors -Corporate GovernanceRehan Ehsan
This Presentation states the role of board of directors in respect of corporate governance of Pakistan. Reviewing this clear the concept of their legal role in Pakistan.
This presentation talks about meaning of Corporate Governance, models of corporate Governance. It includes Anglo-American, German, Japanese Model of governance.
Go through to know more about the CG & Business Models.
Senior Seminar in Business Administration BUS 499Corporate.docxedgar6wallace88877
Senior Seminar in Business Administration
BUS 499
Corporate Governance
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Corporate Governance.
Please go to the next slide.
Objectives
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions.
Please go to the next slide.
Supporting Topics
Separation of Ownership and Managerial Control
Ownership Concentration
Board of Directors
Market for Corporate Control
International Corporate Governance
Governance Mechanisms and Ethical Behavior
In order to achieve these objectives, the following supporting topics will be covered:
Separation of ownership and managerial control;
Ownership concentration;
Board of directors;
Market for corporate control;
International corporate governance; and
Governance mechanisms and ethical behavior.
Please go to the next slide.
Separation of Ownership and Managerial Control
What is Corporate Governance
Shareholders
Purchase stock
Managing of their investment risk
Agency Relationships
Problems
Different interests and goals
Managerial Opportunism
Agency Costs
To start off the lesson, corporate governance is defined as a set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations. Corporate governance is concerned with identifying ways to ensure that decisions are made effectively and that they facilitate strategic competitiveness. Another way to think of governance is to establish and maintain harmony between parties.
Traditionally, U. S. firms were managed by founder- owners and their descendants. As firms became larger the managerial revolution led to a separation of ownership and control in most large corporations. This control of the firm shifted from entrepreneurs to professional managers while ownership became dispersed among unorganized stockholders. Due to these changes modern public corporation was created and was based on the efficient separation of ownership and managerial control.
The separation of ownership and managerial control allows shareholders to purchase stock. This in turn entitles them to income from the firm’s operations after paying expenses. This requires that shareholders take a risk that the firm’s expenses may exceed its revenues.
Shareholders specialize in managing their investment risk. Those managing small firms also own a significant percentage of the firm and there is often less separation between ownership and managerial control. Meanwhile, in a large number of family owned firms, ownership and managerial control are not separated at all. The primary purpose of most large family firms is to increase the family’s wealth.
The separation between owners and managers creates an agency relationship. An agency re.
BUS 499, Week 8 Corporate Governance Slide #TopicNarration.docxcurwenmichaela
BUS 499, Week 8: Corporate Governance
Slide #
Topic
Narration
1
Introduction
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Corporate Governance.
Please go to the next slide.
2
Objectives
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions.
Please go to the next slide.
3
Supporting Topics
In order to achieve these objectives, the following supporting topics will be covered:
Separation of ownership and managerial control;
Ownership concentration;
Board of directors;
Market for corporate control;
International corporate governance; and
Governance mechanisms and ethical behavior.
Please go to the next slide.
4
Separation of Ownership and Managerial Control
To start off the lesson, corporate governance is defined as a set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations. Corporate governance is concerned with identifying ways to ensure that decisionsare made effectively and that they facilitate strategic competitiveness. Another way to think of governance is to establish and maintain harmony between parties.
Traditionally, U. S. firms were managed by founder- owners and their descendants. As firms became larger the managerial revolution led to a separation of ownership and control in most large corporations. This control of the firm shifted from entrepreneurs to professional managers while ownership became dispersed among unorganized stockholders. Due to these changes modern public corporation was created and was based on the efficient separation of ownership and managerial control.
The separation of ownership and managerial control allows shareholders to purchase stock. This in turn entitles them to income from the firm’s operations after paying expenses. This requires that shareholders take a risk that the firm’s expenses may exceed its revenues.
Shareholders specialize in managing their investment risk. Those managing small firms also own a significant percentage of the firm and there is often less separation between ownership and managerial control. Meanwhile, in a large number of family owned firms, ownership and managerial control are not separated at all. The primary purpose of most large family firms is to increase the family’s wealth.
The separation between owners and managers creates an agencyrelationship. An agency relationship exists when one or more persons hire another person or persons as decision- making specialists to perform a service. As a result an agency relationship exists when one party delegates decision- making responsibility to a second party for compensation. Other examples of agency relationships are consultants and clients and insured and insurer. An agency relationship can also exist between managers and their employees, as well as between top- level managers and the firm’s owners.
The sep.
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Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
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Agency theory
1.
2. What Is Agency Theory ?
Agency theory is the branch of financial economics that looks at
conflicts of interest between people with different interests in the
same assets.
This most importantly means the conflicts between:
• shareholders and managers of companies
• shareholders and bond holders.
The theory explains the relationship between principals, such as a
shareholders, and agents, such as a company's managers.
In this relationship the principal delegates (or hires) an agent to
perform work.
The theory attempts to deal with two specific problems:
• how to align the goals of the principal so that they are not in conflict
(agency problem), and
• that the principal and agent reconcile different tolerances for risk.
3.
4. Origins Of agency Theory ?
During the 1960s & 1970s , economists explored risk sharing among
individuals or groups. This literature described the risk sharing
problem as one that arises when co-operating parties have different
attitudes toward risks.
Agency Theory broadened this risk sharing literature to include the
so called agency problem that occurs when co-operating parties
have different goals and division of labour.
Specifically, this theory is directed at the ubiquitous agency
relationship ,in which one party delegates work to another agent
who performs that work. Agency Theory attempts to describe this
relation using the metaphor of a contract. Agency Theory suggests
that the firm can be viewed as a nexus of contracts (loosely defined)
between resource holders.
5. CONFLICTS BETWEEN MANAGERS AND
SHAREHOLDERS
Why conflict of interest between shareholders and
management?
To address the conflict of interest between shareholders and
management, it is important to stress that even within the same
class of shareholders, there may be conflicts, this conflict may
relate to what proportion of the company’s profit should be paid in
the form of dividend and what proportion should be retained for
future investments and for capital investment purposes.
Other potential conflicts may involve company’s ethical policies, its
corporate and social responsibilities policies.
The agency theory, considering the potential conflicts of interest
between shareholders and management may arise as a result of
several factors, some of such factors include:
Reward to management
Risk attitudes of management and shareholders
Takeover decisions by management
Time horizon of management
6. SELF-INTERESTED BEHAVIOR
Agency theory suggests that, in imperfect labor and capital markets,
managers will seek to maximize their own utility at the expense of
corporate shareholders.
Agents have the ability to operate in their own self-interest rather
than in the best interests of the firm because of asymmetric
information (e.g., managers know better than shareholders whether
they are capable of meeting the shareholders' objectives) and
uncertainty (e.g., myriad factors contribute to final outcomes, and it
may not be evident whether the agent directly caused a given
outcome, positive or negative).
Evidence of self-interested managerial behaviour includes the
consumption of some corporate resources in the form of perquisites
and the avoidance of optimal risk positions, whereby risk-averse
managers bypass profitable opportunities in which the firm's
shareholders would prefer they invest. Outside investors recognize
that the firm will make decisions contrary to their best interests.
Accordingly, investors will discount the prices they are willing to pay
for the firm's securities.
7. The interest of shareholders may include:
• Increasing earning per share (EPS), and current share prices
• Increasing investor ratios such as dividend per share (DPS), dividend
cover, dividend yield, price-earning (P/E) ratio
• Others may include the company improving its corporate and social
responsibilities
Management interest may include:
• Managing the firm to achieve its objectives
• Increasing the wealth and size of the company, by expanding
the company’s activities, the bigger the size of the company
they manage the better they are perceived to be.
• Increasing their personal wealth by paying themselves high
remunerations and other benefits
8. COSTS OF SHAREHOLDER-MANAGEMENT
CONFLICT
Agency costs are defined as those costs borne by shareholders to
encourage managers to maximize shareholder wealth rather than
behave in their own self-interests.
There are three major types of agency costs:
(1) expenditures to monitor managerial activities, such as audit
costs;
(2) expenditures to structure the organization in a way that will limit
undesirable managerial behaviour, such as appointing outside
members to the board of directors or restructuring the company's
business units and management hierarchy; and
(3) opportunity costs which are incurred when shareholder-imposed
restrictions, such as requirements for shareholder votes on specific
issues, limit the ability of managers to take actions that advance
shareholder wealth.
9. MECHANISMS FOR DEALING WITH SHAREHOLDER-
MANAGER CONFLICTS
There are two polar positions for dealing with shareholder-manager agency
conflicts.
At one extreme, the firm's managers are compensated entirely on the basis
of stock price changes. In this case, agency costs will be low because
managers have great incentives to maximize shareholder wealth. It would
be extremely difficult, however, to hire talented managers under these
contractual terms because the firm's earnings would be affected by
economic events that are not under managerial control.
At the other extreme, stockholders could monitor every managerial action,
but this would be extremely costly and inefficient.
The optimal solution lies between the extremes, where executive
compensation is tied to performance, but some monitoring is also
undertaken. In addition to monitoring, the following mechanisms encourage
managers to act in shareholders' interests:
(1) performance-based incentive plans,
(2) direct intervention by shareholders,
(3) the threat of firing, and
(4) the threat of takeover.
10. STOCKHOLDERS VERSUS CREDITORS: A SECOND
AGENCY CONFLICT
In addition to the agency conflict between stockholders and
managers, there is a second class of agency conflict between
creditors and stockholders.
Creditors have the primary claim on part of the firm's earnings in the
form of interest and principal payments on the debt as well as a
claim on the firm's assets in the event of bankruptcy.
The stockholders, however, maintain control of the operating
decisions (through the firm's managers) that affect the firm's cash
flows and their corresponding risks.
Shareholder-creditor agency conflicts can result in situations in
which a firm's total value declines but its stock price rises. This
occurs if the value of the firm's outstanding debt falls by more than
the increase in the value of the firm's common stock.
11. AGENCY VERSUS CONTRACT
Although the notions of agency and contract are closely intertwined,
some academics bristle at the suggestion they are essentially the
same.
A conventional view holds that agency is a special application of
contract theory. However, some argue that the reverse is true: a
contract is a formalized, structured, and limited version of agency,
but agency itself is not based on contracts
12. AGENCY AND ETHICS
Since agency relationships are usually more complex and
ambiguous (in terms of what specifically the agent is required to
do for the principal) than contractual relationships, agency carries
with it special ethical issues and problems, concerning both
agents and principals.
Ethicists point out that the classical version of agency theory
assumes that agents (i.e., managers) should always act in
principals' (owners') interests.
However, if taken literally, this entails a further assumption that
either:
(a) the principals' interests are always morally acceptable ones or
(b) managers should act unethically in order to fulfill their "contract"
in the agency relationship.
Clearly, these stances do not conform to any practicable model of
business ethics.
13. Key idea
• Principal-agent relationships should reflect efficient organization of information
and risk-bearing costs
Unit of
analysis
• Contract between principal and agent
Human
assumptions
• Self-interest • Bounded rationality • Risk aversion
Organizational
assumptions
• Partial goal conflict among participants • Efficiency as the effectiveness criterion
Information asymmetry between principal and agent
Information
assumption
• Information as a purchasable commodity
Contracting
problems
• Agency (moral hazard and adverse selection)• Risk sharing
Problem
domain
• Relationships in which the principal and agent have partly differing goals and risk
preferences (e.g., compensation, regulation, leadership, impression management,
whistle-blowing, vertical integration, transfer pricing)