At the complete opposite end of the spectrum from the warm and fuzzy Stakeholder
\nTheory and Corporate Social Responsibility are the cold hard Agency Theory
\nand \u2018Shareholder
\nValue\u2019 approaches <\/p>\n
Agency theory first arose in the 1970s and was apparently developed by Ross<\/a> (1973), Mitnick<\/a> "Specifically, agency theory is directed at the ubiquitous relationship, Agency theory talks about two agency problems. 1) There is likely to Agency theory is both based on self interest (the agent will act in their This emphasis on self-interest causes concern for many of the theory’s detractors. The fabrication of economic man drives a wedge of distrust into society If you’ve read anything in the business press over the last 20 years, you The term \u2018shareholder value\u2019 was first introduced in If you really want to undestand where this idea came from, you need to look relatively poor performance of companies in the 1970s, agency theorists
\n(1973)
\nJensen & Meckling<\/a> (1976,
\nas cited in Eisenhardt
\n1989<\/a>) [11]<\/span><\/a>.
\nEisenhardt describes it:<\/p>\n
\nin which one party (the principal) delegates work to another (the agent), who
\nperforms that work. Agency theory attempts to describe this relationship using
\nthe metaphor of a contract." (Eisenhardt, 1989:58<\/a>). <\/p><\/blockquote>\n
\nbe a conflict between the interests and goals of managers and principals and
\n2) managers and principals will have different levels of risk aversion. The
\ncosts of agency are said to be the cost to principals of 1) obtaining information
\nabout what managers are actually doing and 2) enticing managers to act in the
\ninterests of the principal.<\/p>\n
\nown interests and against those of the principal) and relies on self interest
\nin part to resolve this problem (different levels of incentive based on the
\nself interest of the agent are required to motivate the agent to act according
\nto the principal\u2019s wishes).<\/p>\n
\nAccording to Eisenhardt (1989)<\/a>, "Perrow (1986)<\/a> also criticized the theory
\nfor being unrealistically one-sided because of its neglect of potential exploitation
\nof workers." and Mintzberg et al<\/a> argue that the promulgation of this theory
\nthrough business schools as contributing to a wider social phenomenon of selfishness: <\/p>\n
\nbetween our individual wants and our social needs. (Mintzberg et al, 2002<\/a>). [12] <\/span> <\/a><\/p><\/blockquote>\nShareholder Value<\/a><\/h3>\n
\nwould know that every board and senior executive has but one goal and responsibility
\n– to increase ‘Shareholder Value.’<\/em> Regarding this concept, Sally Eastoe
\nobserves:<\/p>\n
\nthe 1980s by US consultants who were selling value-based management to companies
\nalready under stock-market pressure to increase returns. (Eastoe, 2005: 33<\/a>) [13] <\/span> <\/a><\/p><\/blockquote>\n
\nat Lazonick
\nand O\u2019Sullivan<\/a> (I’ll mostly refer to them as L&O from now on)
\ntrace the phenomenon back to the 1980s when \u201ca relatively small number
\nof giant corporations … dominated
\nthe economy of the United States\u201d
\n(Lazonick & O\u2019Sullivan,
\n2000: 14<\/a>). Accumulating huge revenues these
\ncorporations allocated them according to a principle L&O call \u201cretain
\nand reinvest\u201d. The corporations tended to \u201cretain both the money
\nthat they earned and the people whom they employed.\u201d (Ibid.<\/i>) According
\nto L&O this enabled them to build a strong foundation for growth. However,
\nthey argue, this principle began to run into problems because of the sheer
\nsize of the organisations they had built and competition \u2014 mainly from
\nJapan at that time. Noting the rise of agency theory at this time and the <\/p>\n
\nargued that there was a need for a takeover market…. The rate of return
\non corporate stock was their measure of superior performance, and the maximization
\nof shareholder value became their creed. (Ibid<\/i>: 16)<\/p><\/blockquote>\n