Agency vs. Stewardship Theory within Corporate Governance
Brittany M. George
Columbia Southern University
Abstract
This paper compares the dissimilarities of agency theory and stewardship theory within corporate governance. It will explore the responsibilities of those within top management and the leaders of a company and address the Sarbanes-Oxley Act of 2002.
Upon the establishment of a company, many founders develop a set of guidelines for a company to adhere to as a means to preserve their vision as well as maintain a focus on their customers and product. Instilling such governance is imperative for controlling the direction of how principals and agents direct and oversee the operations of a company and the …show more content…
Companies employing this theory of governance shareholders hire Chief Executive Officers (CEOs) and “incentivize [them] to adequately monitor their output and motivate superior performance” (Martin and Butler 2017). One major role for agents and principals operating under this theory is to align their goals to avoid conflict; however, when they do encounter conflict the goal is to resolve differences to avoid risking the company. Benefits of the agent theory are the incentives that CEOs are offered. These incentives aid in avoiding CEOs from “engaging in shirking behaviors” (Martin and Butler 2017) since they are receiving financial kickbacks. There is a whole host of instances where CEOs have embezzled large sums of money from their companies for their own financial benefit. One example of this is the 2005 conviction of the former CEO of Tyco International, Dennis Kozlowski, and his “racketeering charges related to $600 million in stock fraud” (Martin and Butler 2017). In this case the agency theory was unsuccessful, but in most cases the incentives offered to CEOs avoid such …show more content…
This act was “named for former Senator Paul Sarbanes and former Representative Michael Oxley” (Silverstein 2015). This act was created as a method of protecting and “improve[ing] auditing, reporting and governance of public companies” (Silverstein 2015). Its impact on companies varies; for small sized companies, the affect can be financially troublesome. Although, the Act is in place and must be followed by all companies, it is not uncommon for some companies to disregard the Act and do not consult their general counsel.
The Sarbanes-Oxley Act has changed the way leaders do business in the United States because of the requirements set forth in the Act. Those who wish to “report fraud are protected” under the act without the fear of retaliation (Silverstein 2015). This is imperative as it increases the chances for employees to file reports of foul play within a business.
Strategic audits assist in corporate governance with four different “strategic factors” which are Strengths, Weaknesses, Opportunities, and Threats” which form the “acronym S.W.O.T” (Wheelen and Hunger 1987). Strategic audits are aid in corporate governance and act as a means of analyzing an organization’s process in making
Brittany M. George
Columbia Southern University
Abstract
This paper compares the dissimilarities of agency theory and stewardship theory within corporate governance. It will explore the responsibilities of those within top management and the leaders of a company and address the Sarbanes-Oxley Act of 2002.
Upon the establishment of a company, many founders develop a set of guidelines for a company to adhere to as a means to preserve their vision as well as maintain a focus on their customers and product. Instilling such governance is imperative for controlling the direction of how principals and agents direct and oversee the operations of a company and the …show more content…
Companies employing this theory of governance shareholders hire Chief Executive Officers (CEOs) and “incentivize [them] to adequately monitor their output and motivate superior performance” (Martin and Butler 2017). One major role for agents and principals operating under this theory is to align their goals to avoid conflict; however, when they do encounter conflict the goal is to resolve differences to avoid risking the company. Benefits of the agent theory are the incentives that CEOs are offered. These incentives aid in avoiding CEOs from “engaging in shirking behaviors” (Martin and Butler 2017) since they are receiving financial kickbacks. There is a whole host of instances where CEOs have embezzled large sums of money from their companies for their own financial benefit. One example of this is the 2005 conviction of the former CEO of Tyco International, Dennis Kozlowski, and his “racketeering charges related to $600 million in stock fraud” (Martin and Butler 2017). In this case the agency theory was unsuccessful, but in most cases the incentives offered to CEOs avoid such …show more content…
This act was “named for former Senator Paul Sarbanes and former Representative Michael Oxley” (Silverstein 2015). This act was created as a method of protecting and “improve[ing] auditing, reporting and governance of public companies” (Silverstein 2015). Its impact on companies varies; for small sized companies, the affect can be financially troublesome. Although, the Act is in place and must be followed by all companies, it is not uncommon for some companies to disregard the Act and do not consult their general counsel.
The Sarbanes-Oxley Act has changed the way leaders do business in the United States because of the requirements set forth in the Act. Those who wish to “report fraud are protected” under the act without the fear of retaliation (Silverstein 2015). This is imperative as it increases the chances for employees to file reports of foul play within a business.
Strategic audits assist in corporate governance with four different “strategic factors” which are Strengths, Weaknesses, Opportunities, and Threats” which form the “acronym S.W.O.T” (Wheelen and Hunger 1987). Strategic audits are aid in corporate governance and act as a means of analyzing an organization’s process in making