firms reflected on the inability of the managers to ensure that the overall governance mechanism was well placed within the organizations to ensure their stability and compliance with the rules and regulations. Thus normally, the focus is on the managers for corporate governance ignoring the fact that there are various power structures as well as stakeholders within the organization who can effectively dominate the corporate governance process. The role of institutional investors as well as active shareholders has therefore become more prominent after the collapse of large institutions and now they actively take part in the board meetings etc. Large investors such as institutional investors therefore play a critical role also and one of the fundamental questions to be asked as to how to achieve the balance between those two power structures of the organization to ensure corporate governance process to take its deeper roots. Thus “the fundamental issue concerning corporate governance seems to be how to
In order to properly discuss the above statement, it is critical that a comprehensive overview of the theoretical attempts made so far to discuss and originate the concept of corporate governance is discussed. One of the most potent theories that outline the potential conflict between the roles of managers and shareholders is agency theory.
The birth of the modern corporate required that there must be separation between the ownership and control of the organization. This was done with fundamental aim of taking advantage of the skill level of others who can perform the job of managing the corporate in better manner as compared to the owners.(Igor& Deborah,2010).
Agency theory basically attempts to study the nexus of different resource holders of the firm. Accordingly, a firm is just viewed as a contract between the different resource holders of the firm however, the arrangement of agency arises when principal (mostly shareholders) delegate some power and duties