strategic management sample question

strategic management sample question - 1 Contrast agency...

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1. Contrast agency theory and stewardship theory. (Maiyissa) The main difference between the agency and stewardship theory is the belief that they hold on, the functioning of the manager or any other leadership position. For the agency theory, the owners believe that the manager if let loose is bound to make decisions that are based on self- interest whereas the stewardship theory operates on the belief that when a manager is given responsibility and authority, they have the ability of acting in place of the principal. In terms of structure corporate boards, Agency theory argues that shareholder interests require protection by separation of incumbency of roles of board chair and CEO while stewardship theory argues shareholder interests are maximized by shared incumbency of these roles. Agency theory contend that the principal can go to lengths to ensure that the agent acts in his best interests by establishing appropriate incentives for the agent and by incurring monitoring costs designed to limit the aberrant activities of the agent. Stewardship theory on the other hand, recognises the importance of structures that empower the steward, offering maximum autonomy built upon trust. This minimises the cost of mechanisms aimed at monitoring and controlling behaviours. Moreover, agency theory suggests that man is bound in “economic rationality”, justifying that agents are mostly self-serving and opportunistic while stewardship theory recognises a “more complex and humanistic model of man ”, the steward identifies greater utility accruing from satisfying organisational goals than through self-serving behaviour. Agency Theory example : For example, BOD (board of directors) greenlighting a massive project that gives them more authority or prestige instead of pursuing something else that could maximize shareholder value. Stewardship Theory Example : In American politics, an example of the stewardship theory is where a president practices a governing style based on belief, they have the duty to do whatever is necessary in national interes t, unless prohibited by the Constitution 2. What is stakeholder analysis? List the three-step process. Stakeholder analysis is the identification and evaluation of corporate stakeholders. The first step of the process is to identify the primary stakeholders (those who have a direct connection with the corporation and who have sufficient bargaining power to directly affect corporate activities). The second step is to identify the secondary stakeholders (those who have only an indirect stake in the corporation, but who are also affected by corporate activities). The third step is to estimate the effect on each stakeholder group from any particular strategic decision.
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