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Responsibility
Private company
Not-for-profit org
Primary
accountability
Shareholders and
regulators
Shareholders
Fund providers,
regulators, general
public, members
Principal stakeholders
Shareholders
Shareholders
Donors, grant
providers, regulators,
general public,
members
Main method of
monitoring
performance
Financial statements
Financial statements
Financial statements,
other financial and
non-financial
measures
Governance/board
structure
Executive Directors.
Appointment may be
the result of
shareholding or other
recruitment process
Volunteer trustees
paid and unpaid
management team.
Appointment through
recruitment,
recommendations or
Operational role
Corporate
governance role
Main interests in
company
Directors
Control company in
best interest of
shareholders
Company secretary
Ensure compliance
with company
legislation and keep
board members
informed of their
responsibilities
Advise board on
corporate governance
matters
Sub-board
management
Run business
operations.
Implement board
policies
Employees
Pay
Performance-linked
bonuses
Share options
Status
Reputation
Power
Pay
Performance-linked
bonuses
Job stability
Career progression
Working conditions
Status
Main role
Auditors
Fees
Reputation
Quality of relationship
Compliance with audit
requirements
Regulators
Government
Stock exchange
Small investors
Institutional
investors
Agency theory
Definition: A group of concepts describing the nature of
the agency relationship deriving from the separation
between ownership and control
Key concepts
Agent: employed by principal to carry out task on their
behalf
Agency: relationship between principal and agent
Agency costs: incurred by principals in monitoring agency
behavior because of lack of trust in the good faith of agents
Accountability: by accepting to undertake a task on their
behalf, an agent becomes accountable to principal
Fiduciary responsibility: Agents have the fiduciary duty to
act in the best interests of principals
Agency costs
Monitoring costs
As a results of principals monitoring activities of agents.
May be viewed in monetary terms, resources consumed or time
taken in monitoring
Costs borne by principals but may be indirectly incurred as the
agent spends time and resources on certain activities. Examples
Residual loss
Relates to directors furnishing themselves expensive cars and
planes
These costs are above and beyond the remuneration package
Stakeholder theory
The basis: companies are so large and their impacts
on society are so pervasive that they should
discharge accountability to many more sectors of
society than solely their shareholders
Stakeholder theory is the necessary outcome of
agency theory given that there is business case in
considering the needs of stakeholders
Agency theory is a narrow form of stakeholder
theory
Influences on corporate
governance
Agency theory leads to shareholders pressure and
shareholders activism
Stakeholder theory leads to stakeholder lobbying
and concerns over social responsibility
Company laws provides framework within which
operations occur
Audit and auditors impact on governance
Code of corporate governance