The paper 'Analysis of Ghoshals Agency Theory and the 2008 Global Recession " is a good example of a management article. Management practice in the last half of the 20th century to present decades has increasingly been influenced by theories of business and management. As part of the wider endeavor to bridge science (or theory) and practice, academic economists have promoted several theories that embody certain ideologies, attempt to offer causal explanations, and include a set of prescriptions on which models of management and subsequently management practice has been increasingly been anchored.
A predominant theory of business and management which has had an enormous influence on management is Jensen and Mecklin’ s agency theory. Jensen and Mecklin challenged the existing management models of the 1970s which had resulted in stagflation and declining productivity whose symptom was lackluster stock market performance. They posited that the problem was due to a misalignment between the interests or goals of principals (shareholders) and their agents (executives) and as a remedy they prescribed bringing these interests into synch (Jensen and Meckling 1976). Therefore, at the heart of agency theory is the relationship between the principal and the agent, where the former engages the latter to perform some service on their behalf which involves delegating some decision making authority. However, four decades later, a segment of business scholars are increasingly attributing or assigning blame for corporate malfeasance or failures in corporate governance as manifested in several crises such as Enron, Tyco and most recently the 2007 financial crisis which triggered global economic recession on a scale comparable to the Great Depression of 1929 (Fahlenbrach and Stulz 2009).
Ghoshal (2005), writing before the financial crisis and after the Enron and Tyco scandals, ominously warns of the negative consequences of the adoption and application of some business and management theories claiming that good management practices were being destroyed by “ bad management theories” .
Ghoshal (2005) singles out agency theory and attempts to illustrate how the endeavor to make management science has delinked ethics and morality from management which potentially hold severe negative consequences for corporate governance. In this essay, I will evaluate Ghoshal’ s assertions by exploring the links between his arguments in the article Bad Management Theories are Destroying Good Management Practices, agency theory, and the 2007-2009 financial crisis which triggered the 2008 global recession.
The essay will essentially argue that Ghoshal’ s prediction is not isolated through a review of literature on agency theory and financial crises or failures in corporate governance manifested through corporate scandals which buttress Ghoshal’ s arguments. I will first give a brief summary of Ghoshal’ s main arguments and provide an overview of agency theory from literature by critically discussing the import of its prescriptions on business management practices. In the next section of the essay, I will then briefly provide an overview of and examine the causes of the 2007 financial crisis from a management perspective to demonstrate the culpability of the adoption and application of principles of agency theory or as Dobbin and Jung (2010) describe it, the “ misapplication of Michael Jensen. ” In conclusion, the essay will argue for the validity of Ghoshal and other’ s arguments using the crisis as an illustration of agency theory-based problems.
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