Although the beginning of the banking crisis, where some banks needed a bailout by taxpayers, is seven years ago, the consequences are still observable in the global economy. Further, the crisis pointed out the grievances of actual regulations as well as succinctly regulated corporate governance.
While some economists argue that the banking crisis is evidence that the shareholder theory failed and a shift towards a more stakeholder oriented theory is indispensable, others note that the shareholder theory is still applicable by pointing out that the managers did not act in the intention of the shareholder theory by contravening basic principles of the theory. The bailout by taxpayers further extended the discussion that not only should the managers reconsider several aspects, but also the policy makers who initially had the obligation to prevent the scenario, where banks needed to be bailed out by stakeholders.
This essay will first provide an overview of stakeholder corporate governance as well as shareholder corporate governance theory and the associated critiques. Further this essay takes a glance into the practice by reporting the influences of corporate governance towards the financial crisis with a special focus on the UK. Finally, the essay will conclude possible changes towards corporate governance to prevent crises in the future.
Table of Contents
- 1. Introduction
- 2. Corporate Governance
- 3. Shareholder theory
- 3.1 Shareholder theory and its critiques
- 4. Stakeholder Theory
- 4.1 Stakeholder Theory and its critique
- 5. Corporate governance and the financial crisis
- 5.1 Possible avoidance - Instruments of corporate governance
Objectives and Key Themes
This essay aims to analyze the shareholder and stakeholder theories of corporate governance, examining their critiques and practical applications, particularly within the context of the UK and the 2008 financial crisis. It explores how corporate governance practices influenced the crisis and proposes potential improvements to prevent future crises.
- Shareholder vs. Stakeholder Theories of Corporate Governance
- Critiques of Shareholder and Stakeholder Theories
- The Role of Corporate Governance in the 2008 Financial Crisis
- Corporate Governance in the UK
- Potential Reforms for Corporate Governance
Chapter Summaries
1. Introduction: This introductory chapter sets the stage by highlighting the lasting economic consequences of the 2008 financial crisis and the ensuing debate surrounding corporate governance. It frames the central question of whether the crisis points to a failure of shareholder theory, necessitating a shift towards a stakeholder-centric approach, or if the crisis resulted from a misapplication of shareholder principles. The chapter previews the essay's structure, promising an overview of both shareholder and stakeholder theories, an analysis of their application in the UK in relation to the financial crisis, and a concluding discussion of potential improvements to future corporate governance practices. The essay clearly establishes its scope and the core arguments it intends to address.
2. Corporate Governance: This chapter explores the concept of corporate governance, acknowledging the lack of a standardized definition due to the varied reports and suggestions over the years (Cadbury, 1992; Greenbury, 1995; Higgs, 2003). It highlights Cadbury's definition of corporate governance as "the system by which companies are directed and controlled," while emphasizing the contrasting approaches in the UK/US (shareholder-oriented) and Germany (stakeholder-oriented). The chapter establishes a crucial distinction in board structures: the unitary board (UK/US) versus the two-tier board (Germany), demonstrating how differing governance models reflect differing theoretical priorities.
3. Shareholder theory: This chapter delves into the foundations of shareholder theory, tracing its origins to Adam Smith's ideas on free markets and the neoclassical theory of the firm. It centers around Friedman's (1962) assertion that profit maximization is a company's sole social responsibility, arguing that focusing solely on profit benefits society even without altruistic intentions. The chapter further details the view that shareholders are the owners of the company, bearing the financial risk and thus entitled to maximized returns. Managers, in this model, act on behalf of the shareholders, who are responsible for monitoring managerial actions.
3.1 Shareholder theory and its critiques: This section critically examines the limitations of shareholder theory. Jensen and Meckling (1976) highlight the difficulties in shareholders effectively controlling management, especially in widely-held companies where the incentive for individual shareholder oversight is low due to the free-rider problem. Berle and Means (1932) underscore the prevalent separation of ownership and control, contradicting the neoclassical assumption of owner-controlled firms. The chapter also discusses potential managerial conflicts of interest, such as empire building and short-term profit maximization at the expense of long-term value creation, resulting from the principal-agent problem. These critiques showcase the inherent challenges in implementing and maintaining pure shareholder-centric governance.
4. Stakeholder Theory: [This chapter summary would be added here if the provided text contained information on stakeholder theory. Since the supplied text cuts off before this section, a summary cannot be provided.]
5. Corporate governance and the financial crisis: [This chapter summary would be added here if the provided text contained information on this section. Since the supplied text cuts off before this section, a summary cannot be provided.]
Keywords
Shareholder theory, stakeholder theory, corporate governance, financial crisis, UK, principal-agent problem, free-rider problem, profit maximization, shareholder value, stakeholder interests.
Frequently Asked Questions: A Comprehensive Language Preview
What is the main topic of this text?
This text provides a comprehensive preview of an essay analyzing shareholder and stakeholder theories of corporate governance, their critiques, and their role in the 2008 financial crisis, particularly within the UK context. It explores the potential for improvements in corporate governance practices to prevent future crises.
What topics are covered in the essay preview?
The preview includes a table of contents, objectives and key themes, chapter summaries, and keywords. The key themes revolve around contrasting shareholder and stakeholder theories, examining their strengths and weaknesses, and analyzing their influence on the 2008 financial crisis. The UK's corporate governance system is specifically examined.
What are the key themes of the essay?
The key themes include: comparing shareholder vs. stakeholder theories of corporate governance; critiques of both shareholder and stakeholder theories; the role of corporate governance in the 2008 financial crisis; corporate governance practices in the UK; and potential reforms for improved corporate governance.
What is the objective of the essay?
The essay aims to analyze shareholder and stakeholder theories of corporate governance, examining their critiques and practical applications, particularly in the UK and in relation to the 2008 financial crisis. It aims to explore how corporate governance practices influenced the crisis and propose potential improvements to prevent future crises.
What are the chapter summaries included in the preview?
The preview includes summaries for the Introduction and the chapter on Corporate Governance. The Introduction sets the stage by discussing the 2008 financial crisis's impact and the debate surrounding corporate governance. The Corporate Governance chapter defines the concept, highlighting the differences between UK/US and German approaches, and their contrasting board structures.
What is the summary of Chapter 3 (Shareholder Theory)?
Chapter 3 explores the foundations of shareholder theory, tracing its roots to Adam Smith and Friedman's assertion that profit maximization is a company's sole social responsibility. It discusses the view of shareholders as owners entitled to maximized returns and the role of managers as agents acting on their behalf. Section 3.1 then critically examines the limitations of shareholder theory, addressing issues such as the principal-agent problem and the free-rider problem.
What are the keywords associated with this essay?
The keywords include: Shareholder theory, stakeholder theory, corporate governance, financial crisis, UK, principal-agent problem, free-rider problem, profit maximization, shareholder value, stakeholder interests.
What is the structure of the essay preview?
The preview is structured to provide a comprehensive overview of the essay. It includes a table of contents for easy navigation, a clear statement of objectives and key themes, detailed chapter summaries providing insight into the content and arguments presented in each chapter, and a list of keywords for easy searching and referencing.
- Citar trabajo
- Anonym (Autor), 2015, Shareholder corporate governance, Stakeholder corporate governance and the current situation in the UK, Múnich, GRIN Verlag, https://www.grin.com/document/364435
