Comparing and contrasting agency theory and stakeholder theory Essay

Comparing and contrasting agency theory and stakeholder theory - Essay exercisingIn a corporation the principal are the shareholders, whose agent is the chief executive officer employ by them thus, the agent is expected to act in the interest of the shareholders. The main ch aloneenge is in do the agents to increase their productivity to a level they would achieve if they were the owners. Further, one of the key factors of agency theory is that principals and agents call for different preferences or goals and these divergent preferences can be aligned with the help of incentive contracts. Stakeholder theory is to a great extent not a formal, unified theory, but is more of a broad seek tradition, incorporating philosophy, ethics, political theory, economics, law, and organizational social science (Solomon, 2007, p.23). Stakeholder theory is underscored by the fact that companies are large and view as a far-reaching impact on high society hence they are accountable to many more sections of society than their shareholders alone. A common feature among all stakeholders of a company is their participation in an exchange alliance with the company by providing contributions while expecting their own interests to be fulfilled through inducements. ... has to maintain the support of all of these groups, balancing their interests, while taking measures to ensure that all the stakeholder interests can be maximized over time in the organization. Thesis Statement The purpose of this paper is to compare and contrast Agency theory and Stakeholder theory and to conciliate which theory offers the most useful insights into corporate behaviour. Agency and Stakeholder Theories are Based on Essential clean Principles of Honouring Agreements and Respecting the Autonomy of Others Firms with high levels of agency may face threats from other firms in the business environment, through the machine of the market for corporate control. These assumptions are based on presuming the presence of a functional, efficient, competitive environment, in which schooling asymmetries are minimal, and competitive pressures are high (Udayasankar, Das and Krishnamurti, 2005, p.1). Agency theory pertains to discussion on deterrent example hazards and agency hails. Agency theory can only be applied effectively if four honourable principles were observed avoiding harm to others respecting the autonomy of others avoiding lying and honouring agreements (Solomon, 2007, p.25). That is, the principal-agent model would be applicable only if it was based on the setting of these moralistic principles. Thus, the principle of agent morality stated that only when agents fulfilled their basic moral duties as human beings, could they involve themselves in maximizing shareholders wealth. Further, Agency theory is interwoven with transaction cost theory. Both provide different views of the theory of the firm and of managerial behaviour, while using different linguistic process to desc ribe the same problems and issues. For example, while agency theory confronts moral hazards