Value Based Corporate Governance And The Impact Agency Theory

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Value based corporate governance. I would like to explore value based corporate governance and the impact agency theory has on it. Agency theory looks at the conflict of interest between people with different interests in the same assets. It is important to look at the aspects of agency theory as it is an important part of organisation behaviour and is integral to corporate governance. Agency cost, the cost incurred by a company due to agency conflict and agency theory is sometimes used as an independent aspect and at times jointly with agency theory. For good corporate governance it is important to find a fine balance between the shareholders and the management of a company. Management might want to take the company in a direction that…show more content…
To deal with these issues and to ensure smooth functioning of a company there exist three basic departments in a company, the nomination department, the compensation department and the audit department. These departments enable a company to function in an organised Mondal 2 manner, especially with regards to the people with interest in the capital generated by the company – the shareholders; the executives entrusted with the task of generating profit and capital. The nomination department exists to nominate the managers and the people of the board of directors. The compensation department is in place to look at matters of executive compensation pay. The audit department does the financial analysis, reviews and reports on the financial health of a company. Massive number of corporate scandals that began in late 2001 brought into review the functioning of public company boards and brought under scrutiny the potential flaws in their executive compensation practices. Now a common consensus exists that a majority of boards have adapted compensation arrangements that does not abode well with the views of shareholders. There still exists a major disagreement about the scope and source of such problems and the ways and means of tackling them. The first scholars to state that a theory of agency be created, and to actually begin its creation, were Stephen Ross and Barry Mitnick,
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