Agency theory Essay Example | Topics and Well Written Essays - 4000 words

Agency theory - Essay Example At this stage, agency theory is superseded by what is called stakeholder theory. The same not having been clearly defined, modern scholars advocate the theory called â€Å"enlightened stakeholder theory† which seeks to remove the shortcomings in the traditional stakeholder theory so that managers who could take shelter under the traditional stakeholder theory and avoid accountability, are now compelled to show performance for value maximisation in the long run. This is sought to be achieved by active participation of agents/managers through proper motivation and communication with a scorecard on hand. Thus the enlightened theory would go a long way in plugging the loopholes in the corporate governance occurring in spite legislations like Cadbury report, Greenbury report in the U.K. and SOX Act in the U.S.A. Corporate Governance is a much-discussed issue of public importance, of late. One aspect of the issue is the corporate ownership and control which this proposal deals with. In the discussion here, the word ‘corporate’ is loosely described as firm, company, corporation etc, which all refer to public-owned companies listed in stock exchanges. Share-holder activism all over the global corporate environment has given rise to the study of corporate ownership and control and their impact on the performance of the corporates. By 1990 Corporate Governance had become a household name in the United States of America when a California based pension fund company â€Å"California Public Employees Retirement System’’ (CalPERS) that had invested members’ funds in the shares of leading companies, pioneered by questioning those listed companies’ practice of buying back shares from the share holders at higher prices which meant draining of companies’ c apital and in turn reduction in value of shares held by them. This was soon followed suit by many contemporary companies representing widely dispersed shareholders around the world