Theories and Models of Corporate Governance - Differentiation

From the perspective of Corporate Governance, here is the comparison among theories of agent, stewardship, stakeholder and sociological. After that we also differentiate Models of Anglo-American, Japanese and Indian.

              Differentiation of the Theories of Corporate Governance

Agent Theory

In this theory there is relationship of principal and agent and owners or principal work indirectly through agents, so, there is agency loss. The role of manager acts as agents and to control and monitor the activities. As principals work through agents so there is agent loss, because the personal interest of principal and agents differ and the return of owners falls. Owners try to avoid risk to reduce loss.

Stewardship Theory

In this theory there is no relationship of principal and agent but principal work directly and without the help of agents. The role of the manager is to facilitate and empower the employees. The managers attach significant value to their position, so, the return of shareholders will rise. There is no issue of conflict in the interest of managers as he/she act directly. Owners are willing to take risk to get maximum return.

Stakeholder Theory

This theory emphasizes on social values and ethical values and to satisfy the interests of stakeholders unlike other theories. This theory is not as much applied in the corporation as other theories are applied in the corporation. It focuses on the interests of all the parties involved in the corporation unlike other theories like agency theory.

Sociological Theory

This theory is the combination of agency theory, stewardship theory and stakeholder theory. This theory covers wider range of the activities to ensure fairness and equity in the corporation. Financial reporting, disclosures and auditing are used for these purposes, so it is mainly concerned with the implementation of agency, stewardship and stakeholder theories.

 Differentiation of the Models of Corporate Governance

The Anglo-American Model

In this model ownership is equally divided between individual and institutional shareholders. Directors are not so much independent. There is very clear separation of ownership and management. The disclosure is very clear and comprehensive.

The German Model

In this model, ownership is still with shareholder but shareholder and labor union hold 50 % of the authority to appoint the supervisory board. This supervisory board appoints and monitors the management board. Basically the board is dived into two-tie board, where upper board controls and monitors the top level board on the behalf of shareholders.

The Japanese Model

In this model there is involvement of bank that with the help of shareholders appoint the president and board of directors. For the president, he/she has to make consent with the board and top level management. Unlike other models, the financial institution that is bank plays an important role and that lends the money to corporation.

The Indian Model

The Indian model is mostly followed American-Anglo Model because the shareholders and individual hold equally rights and owners of the corporation. Mostly private corporation are denominated by founders, his/her family and associates.

So, it is all about the comparison among Agent, Stewardship, Stakeholder and Sociological Theories. Furthermore, we also differentiate types of models. Hopefully, now, you understand the above topic of Corporate Governance.