They are ultimately in charge of a company’s success or failure while in the position as CEO. Their goal is to increase the value of the company. One of three methods generally determines a CEOs compensation; those methods are by a board that works within the same company, by an external analyst, or in direct relation to performance. According to Lansing and Knoedgen (2007), CEO compensation that is tied to a board’s decision can be biased to be higher than average, because the board members are usually current or former CEOs and would like to maintain the opportunity for the CEO to be a future business partner if
This review aims to shed light on how board of directors’ behaviours are explained by stewardship theory. There are several theories explaining operation of board of directors’ and their behaviours: agency theory, stewardship theory, resource dependency theory, behavioural theory, social contract theory and legitimacy theory. This paper explores stewardship theory and resource dependency theory to understand operation of board of directors’ and their behaviour. Stewardship theory exists as alternative to agency theory as it has some limitations. Stewardship theory explains how psychological factors affect top managers to work towards same interests of shareholders and organisation.
Agency theory was developed by Jensen and Meckling in 1976 who defined agency relationship as a contract under which one or more persons delegate decision making authority to another person to perform some services on their behalf. Agency theory explores the relationship between a principal and an agent. In the context of a company, the manager (agent) acts on behalf of the shareholder (Principal). Company owners empower managers to make decisions on their behalf. Shareholders do not actively participate in the management of their investments instead they engage managers to act on their behalf.
Corporate governance refers to the public and private institutions, including laws, regulations and accepted business practices, which together govern the relationship between the corporate managers and the entrepreneurs in the market economy (OECD, 2001). In other word, corporate governance theory can be defined as a set of rules and regulations according to which the behavior of a company is affected. Corporate governance defined as “a process through which shareholders induce management to act in their interest, providing a degree of confidence that is necessary for capital markets to function effectively” (Rezaee, 2009). According to Mohd Sulaiman and Bidin (2002), they defined corporate governance as an expression used to describe the way of companies are directed and
Abraham Zaleznik in his article, “Managers and Leaders: Are They Different?” (1977) puts forth a claim that in every aspect of personality and reaction to certain events, managers and leaders are fundamentally different from each other. In this paper, I shall summarize Zaleznik’s argument and subsequently his reasons and evidences to make such a claim. To build on his main claim, Zaleznik at first creates a fine line between managers and leaders based on their personalities. He states that a manager operates in the realms of rationality; his reasons being the structured, ordered environment managers exercise their power in: the business organization. In contrast, a leader, as Zaleznik implies, is somewhat erratic and invites disorder, the
The issue box notes the difference between “Charismatic” and “Down-to-Earth” leadership. How are these differences manifest in task management? Use the articles to find specific aspects of difference. The differences between “charismatic” and “down-to-earth” leadership styles are manifest in task management in the mission, goals, and atmosphere of the business environment. The type of leadership style radiating from the management of a company can inspire lower management and line workers, direct the organization on a path toward success, and address arising conflict and obstacles within the business and in the market.
1.AGENCY THEORY Agency theory is directed at the agency relationship, a contract involving the delegation of decision-making authority from one party (the principal) to another party (the agent) to work on their behalf (Jensen and Meckling,1976). Stemming from the assumption that people are self-interested, the theory concerns the most efficient contract governing the principal-agent relationship(Mitchell and Meacheam, 2011). Agency relationship is derived from the separation of ownership and control. Typically, it refers to the relationship between the shareholders and managers of a corporation with diffused ownership (He and Sommer,2006). A contractual relationship is created when the principal(shareholder) hires an agent(manager) to manage
It is the net result of the interaction of a person’s beliefs, ideas, feelings, and impressions about the company. A company will not have a reputation – people hold reputations of the company”(Dowling, 1986). There are three important aspects of a company that can affect the corporate reputation, which are image, identity and desired identity. It is important to define explicitly that all these three key elements and to know the difference among them. Image: How external stakeholders see the company The image is a summary of the impressions held by external stakeholders(Bromley, 1993).
The issue of employee turnover has to be identified addressed by the management and a possible solution should be found. This could be done by finding out the root cause of the issue. According to researchers, there is a correlation between job satisfaction and employee turnover. There are other factors that lead to higher employee turnover such as poor working conditions, Employees often voluntarily leave a job due to the relationship they have with their direct managers. Generally, if the work relationships are positive and motivating, employees will accept average wages and mundane or even highly stressful work.
Abassi and Hollman (2000); Hewitts Associates (2006); Sherman et al. (2006) highlights some of these reasons as hiring practices, management style, lack of recognition, lack of competitive compensation system, toxic workplace environment. Others include lack of interesting work, lack of job security, lack of promotion and inadequate training and development opportunities. These variables can be broadly classified into intrinsic and extrinsic motivational factors. Herzberg (1959) two factor theory as cited in Bassett-Jones and Lloyd (2005) argued that employees are motivated by internal values rather than values that are external to the work.