TheoriesIntroductionCorporate Governance has become a typical issue at the moment and is attracting a good deal of public interest because, of its apparent importance for the economic health of corporations and society in general. Corporate Governance is related to publicly traded, privately held, for profit and not for profit organizations. It should outline the duties, responsibilities and powers of Directors. Directors' interest should be to the stockholders, as well as, stakeholders such as employees, customers, suppliers, creditors and the community. Most times only stockholders interests are managed. Some theories relevant to corporate governance are: Simple Finance, the Stewardship and the Stakeholders theory. Stakeholder TheoryThe concept of a stakeholder relies on the fact that corporate activity is not solely a series of market transactions but also a cooperative (and competitive) endeavour involving large numbers of people organized in various ways.
The corporation or firm is often a large organization providing a way for many individuals and groups to achieve their ends. A company shares a symbiotic relationship with its stakeholders. A company cannot function without its employees, and the employees in turn do not get to earn a livelihood without the company.
The stakeholder view to develop this theory the organization has to be viewed as a stakeholder organization. Stakeholders are the people who have an interest, claim, or stake in an organization, in what it does, and in how well it performs. ' (Jones p. 31) In a word, a stakeholder is every individual or group who is capable of affect or is affected via an organization’s performance. In order to investigate and measure the effectiveness of organizational performance, studying the stakeholders is necessary.
It is a rather understandable saying that a extensive variety of people as well as interest groups have an participation with any organization - include shareholders, clientele, suppliers, workers, the neighbourhood community, government ect. Evidently, they also have diverse and changing degrees of power on the behaviour and development of the organization. Jones (2004) believes that there are two main groups of organizational stakeholders, inside stakeholders and outside stakeholders. Inside stakeholders including shareholders, managers, and the workforce are those people who are closest to the organization and have the strongest or most direct claim on organizational resources.
Shareholders are the owners of the organization who invest money and capital in organization in order to earn money from dividends and increases in the price of stock. They are the primary constituents of the corporation. Their claim on organizational resources is often considered superior to the claims of other inside stakeholders. The shareholders have ultimate authority over the use of a corporation's resources. They own and control the organization legally through their representatives - the board of directors. Through the board, they delegate to legal authority and responsibility to managers so that they can use the organization’s resource to create value and to meet goals Moreover, once shareholders no longer believe that the inducement is enough to warrant their contribution, they will sell their shares and withdraw their support from the organization.
Managers are the employees who coordinate organisational resources to create value and ensure the goals of organisation are successfully met. They are the agents or employees of shareholders and are appointed indirectly by shareholders through the broad of directors of the organisation to manage the organisation's business.
They contribute their skills to direct the organisations response to pressures from within and outside the organisation.