Control Oriented Theories, Managerialism And Agency

Control Two relevant control-oriented theories, managerialism and agency, are explored by (Tosi, H., Werner, J. Katz J. and Gomez-Mejia, I., 2000). Managerialism suggests that where control and ownership are separated, conflict of interests can arise between the owner and the manager. Various authors have identified that CEO’s tend to increase the size of the organisation rather than profits despite potential loss to shareholders. This may be because they find it easier, they feel that a bigger company justifies more compensation or growth is less risky than profit improvement. The divergence of interests can be facilitated as shareholders may deal with other companies, it is difficult to control CEO’s and size becomes an easy option to set compensation. Boards may support CEO’s as they may be friends and may benefit themselves if high CEO pay drives that of all directors. Agency theory presumes that shareholders will employ CEO’s who work to achieve shareholder objectives, but also suggest that agents avoid risk, are egoistic and may have their own agenda. Shareholders struggle to control CEO’s who generally have deeper knowledge of the business and can direct company resources to meet their objectives. To help align objectives, shareholders should monitor CEO activities and establish incentives that encourage the achievement of shareholder objectives. Since shareholders lack full transparency within the company, they must rely on incentives that relate to visible resultsShow MoreRelatedNew Public Management And Administrative Philosophy Essay3038 Words   |  13 PagesThese reformers, the new scientists of public administration, built a theory of organization that they supplemented with the concept of management. 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