They are after all paid for working for the primary stakeholder, the shareholder to create value and profit for him. It is incidental that for earning this profit, they have to be equally mindful of befitting the secondary stakeholders. Contrary to common belief, there are many stakeholders in the business apart from the shareholder or the stockholder. They are the employees, customers, suppliers, bankers and even the society at large who look for some benefit from the company, and in turn are also its well-wishers.The question is how to determine that the managers are acting in the best interest of the shareholders? One way is to read the annual financial results that reveal the results of their efforts in realizing profit and value for the owners of the company. But this does not reveal their competency level. The various audits and financial data only show that these are results of activities that have been checked for correctness but they do not reflect on what level of competence was exercised. The better and more comprehensive method is through Corporate Governance.The company is a legal entity and therefore has to enter into commercial transactions all the time for carrying on its business activities. These transactions are concluded by the managers on behalf of the company since the legal entity is not a person and needs agents to carry out these duties for it. This ability of the managers to enter into legal contracts and agreements makes them the agent of the company with the liability resting with the company. This situation gives rise to irresponsible behavior on the part of managers who do not carry the burden of any wrongdoing on their part. It is to control this likely misuse of power that Corporate Governance assumes importance.Business strategies and processes have to be tailor-made to serve every stakeholder. Similarly, Corporate Governance rules and processes have to encompass all activities that have a direct or indirect bearing on different stakeholders. It will not be far from the truth to say that the agency theory has little relevance on Corporate Governance.
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