03 Activity 2

Instruction: Answer the following questions. Refer to the given rubric for scoring. (50
points)

1. Explain the merits and limitations of each of the following corporate governance theories.
Is any one's governance theory superior to another?

a.) Agency theory- companies function as agents for their investors. That is, investors
engage in corporate control and therefore entrust their resources to the administration of
the corporation's directors and management. Agency theory explains why individuals
accept unreasonable demands, even if they don't want to. We know, however, that a
theory is less understandable than an explanation and is simply more precise than a
definition. Even if they are proven guilty, it is beneficial to them.

 Metris, it discusses several kinds of obedience.

- Causes an agentic condition in which people comply more when commands are
delivered with greater authority.
- It helps in explaining unexplained acts by utilizing the Agentic and Independent
states.

 Limitations, there is another reason about why individuals used social power in
such a way.

- The Agency theory is more of a description than a theory.

- The theory is weaker than the explanation.
- This will not go much further than the definition.

b.) Stewardship theory- someone who protects and cares for the needs of others is a steward.
Company leaders, according to the stewardship principle, defend the interests of its
shareholders or owners and make decisions on their behalf. Their only goal is to build
and sustain a profitable corporation so that the investors will benefit.

 Metris, establishes a system between managers and owners in order to achieve

harmony.

- Inspires employees.
- Highlight the CEO's role as "definitive and uncontested."
- Provides unification of direction as well as strong authority.
  Limitations, the function of the "steward" is over- simplified and impractical.

- The demands model is untenable.

- - Having a CEO who is not a chairman
- The theory boosts senior executives' pride.
- A lack of empirical evidence

c.) Stakeholder theory- it concentrates on each participant's capability. Stakeholder theory

also seeks to balance ethics and economics while attaining the company's objectives. In
other words, a business should be managed in a way that benefits its stakeholders.
Directors should be held responsible to them. This means that businesses cannot exploit
stakeholders to their advantage in the long-term. Instead, the primary goal should be to
generate profits for the stakeholders.

 Metris, this theory is more than just a single model for fixing the situation of
identifying appropriate purpose of businesses. It also needs to take into account
in economic and ethical problems that needs businesses to take on social
obligations and to show equality to all parties involved in business. This results in
an agentic condition in which people comply more when commands are issued
with more authority.

-The theory is a nice combination of economy and ethics that allows the firm to
develop while also promoting societal wealth as a whole.
- As a result of shareholder loyalty, large amounts of societal wealth will be
created.

 Limitations- It is impossible for a company's management to please all

stakeholders at the same time.

- It must deal with the incapacity to impact performance and outcomes 100% of

the time. Several stakeholder groups have very little effect on an organization's
ultimate choices. This is caused mostly by differences in power levels and areas
of control within an enterprise.

Is any one's governance theory superior to another?

There is no superior theory, in my viewpoint, because all of these theories put a different
and distinctive function on good governance, which is to enhance an effective,
entrepreneurial, and quality management that can achieve the company's long-term
success. We can say that the theories of governance apply to multiple forms of
organizational action, but it is about more strategic factors of guiding a society in larger
decisions about direction and roles. Governance theories address not just where to go, but
also who must be involved in decision-making and in what manner.