CAT / FIA FBT Syllabus B. Business Organisation Structure, Functions - Ownership & Control - Notes ^{1 / 5}

The separation of ownership and control is a situation where decision makers do not own a major share of the wealth effects of their decisions.

However, the shareholders will want to build in safeguards to ensure that the managers run the business in the interests of all the stakeholders fairly, and not just in the managers' own interest.

There are three different views associated with the “ownership” and “management” of organisations:

1. The Stewardship Theory

2. Agency Theory

3. Stakeholder Theory

The Stewardship Theory

• This views the management of the organisation as the “stewards” of its assets, charged with their employment and deployment in ways consistent with the overall strategy of the organisation. 

  Other groups take little or no part in the operations of the company. They receive information via reports, accounts etc. 

  Technically, the shareholders have the right to dismiss stewards via a vote at the AGM (Annual General Meeting).

The Agency Theory

• A very different approach to governance is held within that of the agency theory. 

  It believes that rather than acting as a steward of the company the management seeks to service their own interests. 

  They will only look after the performance of the company if it coincides with their personal goals.

The Stakeholder Theory

• This theory looks at the bigger picture. 

  It believes that the management has a duty of care, not just to the owners of the company but also to the wider community of interest, or stakeholders.