Online Activity – Theories in Corporate Governance

1. Agency theory is focusing on the relationship between agents and principals

2. In Agency Theory, managers is the agents, while shareholders are principals

3. Describe the task of the agent in the principal agent relationship

The principal-agent relationship is an arrangement in which one entity used to legally
appoint another for acting on its behalf. In a principal-agent relationship, the agent used to
act on behalf of the principal and should not possess a conflict of interest in carrying out the
act.

4. What are the problems of agency relationship?

An agency problem refers to a conflict of interest that exists in every connection in which
one person is expected to behave in the best interests of the other.

5. What is conflict of interest? Give 2 examples of conflict of interest.

A conflict of interest arises in the workplace when an employee has competing interests or
loyalties that either are, or potentially can be, at odds with each other.
A conflict of interest causes an employee to experience a struggle between diverging
interests, points of view, or allegiances. These are examples of situations in which an
employee might experience a conflict of interest.
1. A relative or close friend reports to a supervisor who affects their
job responsibilities, pay, andpromotions.
2. A male manager dates a female employee who reports to him.

6. In order to mitigate agency problems, agency cost occurs. Explain agency costs in agency
relationship.
An agency cost is a form of internal business expense incurred as a result of an agent's
activity on behalf of a principal. Agency costs generally occur as a result of underlying
inefficiencies, dissatisfactions, and disruptions, such as shareholder-management conflicts of
interest.
7. Describe stakeholder theory.
Stakeholder theory is an ethical concept that tackles the result of corporate choices, trends,
profits, and so on, as well as their combined influence on all stakeholders, such as
shareholders, employees, financiers, governments, consumers, suppliers, and so on.

8. Describe stewardship theory.

According to the stewardship theory, managers will handle their resources responsibly if left
alone. It also asserts that there is a significant link between employee happiness and
organisational performance.

9. Describe resource dependency theory.

The idea behind resource dependence theory is that in order for an organisation, such a
business corporation, to obtain resources, it must trade with other individuals and
organisations in its environment.

10. Describe resource based view theory.

Resource based view theory is the concept that a firm’s performance is determined by the
resources it has at its disposal. The way these resources are used and configured enable the
firm to perform and can provide a distinct competitive advantage.

11. What is the difference between resources based view theory and resource dependency
theory?

Difference between resources based view theory is focuses on internal resources as a means
of creating a competitive advantage while the resource dependence theory is explain how
organisations’ behaviour is affected by the external resources they possess.