Contrasting approaches to corporate governance^
Shareholder centered
Company centered
TheoryAgency theoryEntity theoryConception of the corporationLegal fi ction; nexus of contracts; pool of capitalLegal entity; social and economic organism; purposeful organizationOrigins of the corporationPrivate agreement among property owners to pool and increase capitalCreated by lawmakers to encourage investment in long-term, large-scale projects needed by societyFunctions of the corporationMaximize wealth for shareholdersProvide goods and services; provide employment; create opportunities for investment; drive innovationPurpose of specifi c corporationsMaximize shareholder valueBusiness purpose set by the particular company’s boardResponsibilities to societyNone (fi ctional entities can’t have responsibilities)Fulfi ll business purpose and act as a good corporate citizenEthical standardsUnclear: whatever shareholders want, or obey law and avoid fraud or collusionObey law and follow generally accepted ethical standardsRole of shareholdersPrincipals/owners of the corporation with authority over its businessOwners of shares; suppliers of capital with defi ned rights and responsibilities