SUMMATIVE REPORT

Corporate governance can mean any of the systems and processes which control an
organization, however this definition does not clarify what corporate governance is. Governance
refers to regulations and practices that assist the company achieve its objectives, while at the
same time minimize future conflicts. Companies need a clear management framework that
provides them with the necessary tools to reduce risk and make the right decisions. Board
members, supervisors, and managers need to understand their roles and how they will fit into
the larger organizational structure once the company has established governance guidelines.
Everyone's role is consolidated through governance to ensure that they do not deviate from
their objectives. The proper governance structure explains the rules and decision-making
methods of the company, as well as the distribution of rights and obligations among the different
members of the company.

Agency Theory

The central idea of agency theory is that the actions of management differ from those
required by shareholders to maximize their profits. According to this theory, managers act as
"agents" of the company. Managers are responsible for implementing these goals in the day-to-
day work of the business. In modern companies, share ownership is widespread. Widely
distributed managers may not be able to combat this without the proper systems in place.

Stakeholder Theory

Stakeholder theory is the theory that the business is an input and output model and that
all interest groups include creditors, employees, customers, suppliers, local communities and
governments. This theory assumes that the parties involved are able and willing to negotiate
with each other.

Stewardship Theory

A steward is someone who looks after another's property or estate. When the owner is
not present, the management and staff are responsible for safeguarding the corporation's
resources and property. According to the Stewardship Theory, they are not agents at all, but
rather administrators.

There are three main models of leadership on which the corporate governance theory is
based: the Anglo-Saxon, the Continental and the Japanese model. (1) The dominance of
independent individuals and individual shareholders in the corporation characterizes the Anglo-
Saxon model. The management is responsible to both the Board of Directors and the
shareholders, with the latter being especially interested in profitable activities and dividends.
However, it suffers from a lack of strategic development. (2) A high level of capital concentration
characterizes the Continental European model. Shareholders share the interests of the
organization and are involved in its governance and management. In addition to shareholders
such as unions, business partners and so on, managers are liable to a wider group of
stakeholders. (3) The Japanese model introduces a new holding concept that identifies
industrial groups made up of enterprises with same interests and similar tactics. In relationships
with shareholders and keiretsu (a loyal supplier network and clients), managers' responsibilities
are evident.

REACTION PAPER

Corporate governance is crucial to investors because it demonstrates a company's

direction and business integrity. Good corporate governance enables businesses to create
confidence with their investors and the community. As a result, corporate governance promotes
financial viability by providing market players with a long-term investment opportunity. Corporate
governance best practices are merely reflections of theoretical concepts in the behavior of
distinct entities. On the other hand, it is critical to be realistic and acknowledge that any system,
no matter how well-intended, will always have flaws. However, human negligence must not
produce these flaws, but instead it must take on the aspect of a major power. Learning from the
past is the first step towards a future corporate governance and responsibility society, which will
obsolete quantity and tight time limits and will replace a permanent interest in sustainable
growth as a safe way of maximizing value for certain entities and achieving the general interest.

The Agency theory favors external forces as external individuals are less likely to
participate in corruption to supervise operations in the organization. Theory of stewardship,
however, is that it promotes management managers within the organization. A manager who
has risen in the business line will probably know the company from within and take judgments
on the basis of internal knowledge. I personally believe that the idea of stewardship is closer to
my own set of values and ideas than the system of agency. This is because I see myself as an
honest person who can bear my responsibility with no one looking over my shoulder. However, I
recognize that they are both correct. Theory of stewardship is more in line with modern
leadership approaches, such as transitional leadership or managers, both used for the
development of confidence and personal growth in the management and employees.

A review of the three main corporate governance models indicates that at least two
factors are possible in order to offer a basis for comparison: first the system and second the
effectiveness of assessment management. In each system, the maximization of the ownership
assets is interpreted differently; as they differ from one country to another as do the holders of
claims. The American system highlights the role of free market, which is based on control of the
owners of the companies. The Japanese model focuses on the interdependent corporate
network, in particular through mutual monitoring, and on the interests of those concerned. In the
German system, the corporation is considered to be an entity which produces wealth so that its
economy is closely monitored by the market. Control and stimulation for profit are the interests
of employees and creditors. Each model has developed from the necessity, measures and
efforts to improve the governance system are clearly distinct in this respect.