The roles of agency theory, corporate governa...

The roles of agency theory, corporate governance and bureaucratic theory in business management: An exploratory survey

Author Name : Christopher Ndlovu

ABSTRACT

The point of departure for this research paper is to examine the link between agency theory, corporate governance and bureaucratic theory. Where agency theory basically explains the principal-agent relationship be it in implied or formal contracts where the former hires the latter to manage the principal's interests.  Agency theory therefore becomes an attempt to understand and explain the relationships obtaining between the business capital investors, board of directors and company management. However, there remain some challenges still in the principal-agent relationships that are better addressed by corporate governance. One of the essential roles of corporate governance emerging from the literature is that it spells out the rights and responsibilities of the corporation’s main players, the board of directors, the managers, shareholders, and stakeholders. Corporate governance goes further than agency theory and even sets the rules and procedures for organizational decision-making processes. However, modern day private and public organisations have grown so large, have complex ownership structure and as a result bureaucratic organizational forms obtain in such organisations. According to Weber the formality, rules and impersonality operations of these large bureaucratic organization systems become the ideal as it enhances the predictability of the operations since there are clearly laid down rules on how to run such businesses.