What corporate governance theory is suitable or visible in the corporate culture board of under developed country Pakistan?
To begin with, Let us first discuss the different theories and how they differ from one another. Principal –Agent Theory is the agreement that one person or unit, other known as the agent. The agent is acting on behalf of another person or unit which is other known as the principal. In other words, shareholders of a company act as principals and the people in the management are acting on their behalf. The same thing goes to investors who act as principals. On the other hand, funds act as agents to manage, develop and increase the asset of the investors. Furthermore, this theory is effective when the agent is good at decision making. And, there is a mutual interest and relationship between the principal and the agent towards common mission, vision and goal of the organization.
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In comparison, Stakeholder Theory is about the stockholders who are the owners of the company. And, the company has a responsibility of putting the needs of the whole organization. Moreover, this theory also explains the conversion of the investors, employees, suppliers, customers into function as well as into production and growth. In the same manner, return of investment will be the most important part of this theory. This also involves governmental officials, political entities, traders and the public.
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In contrast, Stewardship Theory or Agency Theory discussed the condition of setting aside self-interest. This theory separates the ownership from control ship. Managers are responsible in improving their position and duties as well as implementing rules and policies to their subordinates as well as to themselves. On the other hand, the board of directors seeks to control managers. But still, mutual interest and good relationship must be established to be able to achieve the common goal of the company. Aside from maximizing company revenues and bring good return of investments to the investors; there are more factors that involve in the Stewardship Theory, it is motivation. This elaborately deals with the sense of humanity, good reputation and values towards their subordinates or the employees. And, it also touches the organizational management and business core values that concern the morals of the people on how to act accordingly with the culture, policies and the interest of the majority of the workforce inside the organization. Next is the Identification, the managers must identify themselves with the entire organization. So, whatever problems in the company, managers should always consider it as their own responsibility that they need to resolve being part of the company and being responsible to do certain action for improvement. On the other side, if there is good or favorable output, the managers should be one to take pride of the success because they have been contributed their worth and effort for the organization.
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The applicable theory that is evidently effective in the corporate governance in Pakistan is the Stewardship Theory or Agency Theory. Through this theory, the companies in the country will be able to promote awareness and encouragement for good corporate governance practices. This theory will help in developing major responsibilities in the participation of all members in the organization. The stockholders, the board of directors and the employees if could have worked together they certainly produce favorable results for the company. This theory builds also fairness, transparency and accountability that would definitely reduce corruptions especially in the government sectors and public offices. This theory will also help in safeguarding the interest of stakeholders, management as well as the interest of the employees in the entire organization. It acts also as a foundation of building forums for the balanced corporate governance framework and issues that guide on matters that involved the responsibilities of the board of directors, management, secretaries, accountants and the rest of the employees in the organization.
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The strategy of Pakistan in fighting against money laundering is based on the principle for the improvement of financial system and to adopt international banking practices to combat money laundering. Agency theory will provide also a strategic plan on comprehensive policies and laws for every institution. By developing firm and complete laws, it will surely identify the responsibilities of various institutions and companies. In addition, it will also strengthen the implementation of fair and just government law for the different industries in the country Aside from that, what is most important is the supervisory capability, enforcement method, trainings and seminars for the management and the employees of every institution or company that will help them to become aware of their rights, limitations, the international standards, technical .collaboration and compliance with the UN resolutions. This is not an easy job to do, but all the countries in the region must have to change their radical financial management systems in order to meet the international standards and policies in the world market.
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References:
(http://www.google.com.ph/#hl=tl&biw=1024&bih=637&q=principal+agent+theory&aq=f&aqi=g2&aql=&oq=&fp=453ba55dfbaefcfa)
(http://www.google.com.ph/#hl=tl&biw=1024&bih=637&q=stakeholder+theory&aq=f&aqi=g6&aql=&oq=&fp=453ba55dfbaefcfa)
(http://www.google.com.ph/#hl=tl&biw=1024&bih=637&q=Agency+theory&aq=f&aqi=g6&aql=&oq=&fp=453ba55dfbaefcfa)
http://www.google.com.ph/#hl=tl&biw=1024&bih=637&q=principal+agent+theory&aq=f&aqi=g2&aql=&oq=&fp=453ba55dfbaefcfa
http://www.google.com.ph/#hl=tl&biw=1024&bih=637&q=principal+agent+theory&aq=f&aqi=g2&aql=&oq=&fp=453ba55dfbaefcfa
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