Agency theory and the question of shareholder primacy Essay

Agency theory and the question of shareholder primacy - Essay Example As a way of dealing with such unhealthy tango that normally exists among owners and controllers such as shareholders, the corporate governance is usually used to structure and clarify the distribution and use of power among all stakeholders within the modern firm (Waitzer and Jaswal 480). In this paper, the role of corporate governance and law in general in ensuring effective power relationships among competing groups within the organization is reviewed from two perspectives. These perspectives are agency theory and shareholder primacy. As part of the review of the two perspectives, key debates in literature on perceived problems and benefits associated with agency theory and shareholder primacy will be discussed. Based on the review, a conclusion was taken that shareholder primacy fails to be a credible source of solution to most forms of conflicts and unrest that exists among various stakeholders within the organization and outside of it. This is conclusion is taken based on the fa ct that shareholder primacy seeks to prioritize the interest of shareholders only and thus create uneasiness with other stakeholders. In common-law based countries such as the US and the UK, power struggle has been identified to be very common because of the separation between ownership and control. As a result of the separation, anxieties of corporate control have often been created between owners and shareholders, bringing about corporate tensions that affect the running of organizations negatively (Jensen and Meckling 309). Unlike civil-law framework countries, the UK and US promote more diversified shareholder basis through delivering good security of minority shareholders (Mallin 11). In most corporate organizations, owners and shareholders have often looked over their shoulders, suspecting that the other person may be having some advantages that help serve their personal interests rather than the