Principal Theory&Principle TheoryCam CaldwellRanjan KarriPamela VollmarPrincipal & Principle Theory1GROUP MEMBERSUmair JavedTaha ShahbazMaham RasheedL1S12MBAM0080L1S12MBAM0116L1S12MBAM0079Principal & Principle Theory2INTRODUCTIONRelation of leaders and followersTo create sense of communityEmployee cynicism (distrust)Crisis of trust management literatureWork placeMain field of job insecurityDishonesty at all organizational levels

Principal & Principle Theory33Corporate American ReportIn 200371% of American polled said that none, very few or only some corporation operated in a fair & honest mannerPrincipal & Principle Theory4Concept of GovernanceHow an organizations are managed to optimize performance & accountability?How values & goals are reflected by systems & structures that are created?How leaders establish relationship that engender the commitment of those who work with & for them?Principal & Principle Theory5Principal & Principle Theory6Organizational ModelEnsuring of manager Traditional ModelIncrease in costEvolving ModelsFocusing stakeholders

Traditionally organizational governance structures are evolved uponEconomically reduce potential exchange problemsBounded rationalityThreat of opportunismThe TheoriesReflective of real world corporate behaviorRationally justifiable to some corporate leadersDysfunctional in building long-term corporate wealthAcknowledge forms of three theoriesAgency theoryStewardship theoryStakeholder theoryPrincipal & Principle Theory7Issues of Governance Business in ContextTraditional ApproachResponsibility of one who own and one who runResearches viewGovernance is expensiveShort term profitsFail to gain desired outcomesAfter math of Enron and WorldComPrincipal & Principle Theory8Principal & Principle Theory9Business leadersBottom line resultsDuties to stakeholdersCorporate citizenship behaviorClassic theoryShareholders focused

Traditional thinkers about governanceEconomic returnTransaction costScholarsConnectionsMoral responsibilitiesEconomic effectivenessGovernance RequirementsInstrumental DutyLong term for stakeholdersAvoid short term decisions to inflate marketNormative ResponsibilitiesOwes a corporate citizenDo not harmSteward of resourcesDeveloper of peopleContributor in the creation of better society Principal & Principle Theory10Principal & Principle Theory11L1S12MBAM0116Taha ShahbazPrincipal TheoryPrincipals pursue self interest with guile rather agents as they have high stake.Owners have an ethical opportunity and authority in taking advantage of employees who serve them.Governance model explains that employees serve their stockholders for their higher interest but that creates short term profit.Agents are assigned with tough assignments much mostly violate psychological contract because of self interest.Principal & agents and the employees of the company were in a relation but later things become personal.Principal & Principle Theory12The psychological contract imposed principal to create job security for the agents and employees to create ability to gain short term wealthThere was absence of much planning and strategic thought.There were growing trends of employers because of their contract hiring, which avoided their benefits, that created less commitment resulting no long term wealth creation.Reengineering & downsizing was highly done by principals for cost reduction to increase short term profit which ruined the life and family of employees.Principals BWC rule (Because We Can)Principal & Principle Theory13Principal & Principle Theory14Company focus uponNature of businessNeeds of customersCore elements of systems and processesResources required to be successfulBarriers that impair progress

An ideology is of core values and sense of purpose to create wealth as well as inspiring people with in the company to focus of long term sustainabilityCorporate falls prey to monthly programs other goals fads in organizational improvementPrinciple TheoryFocus on set of guiding principles for systematical and properly utilization of resources to reach the projected long term goals.Decision making is so committed with principles or ideals that lose hand on it which then becomes out of balance and are replaced by duties of wealth creation which fall prey to deceptionCommitment to Principle Theory: Wallace CompanyMythology of business when principles become confuse.Charismatic leaders can lead in profound and dynamic manner by leading it to greater goals to many years.Principal & Principle Theory15Agency TheoryIt emphasize on the relationship of hired management, agent, stockholder or investors and principals, who own the company.Agent maximize his/her personal self-interest by meeting economic goals.Agent stress on growth over profitability.Principals expect that agents are committed to agents goal.Principals may incur cost in monitoring or bonding agents to control agent opportunity.Principal & Principle Theory16Agents increase in cost which loses principals trust.Agency theory focus on short term wealth creation.Profit maximization falls to achieve social integration among commitment of leaders and followers.Employees feel like that they are commodities rather than people.Principal & Principle Theory1717Stakeholder TheoryA theory of organizational management and ethicsHere manager has to look after the interest of shareholders or principals and other stakeholders ethically so that he might not violate any interest while decision makingManager should reconcile the conflicts of interest through fair managementValues of stakeholder theoryCompromise Balancing of interestTreating all parties fairlyPrincipal & Principle Theory18Fairness in stakeholder theory emphasize on balancing of equities and allocation of procedural rules.Followers want that they should also be able to appreciate there management for securing their interest as they secure of other stakeholders.Identifying, evaluating and responding to stakeholders claims are a time consuming and complex system and deciding which stakeholder interest is to prioritized. Stakeholder theory makes followers to feel calm that their interest has been look after, compromised and secured.Principal & Principle Theory19Stewardship TheoryIn context to this theory motivation of managers are based upon pro-organizational rather self interest behaviorStewardship role is sought by service rather that self interest and through which complete needs are achieved if employees are considered as a part of family.Covenantal duties owed to all stakeholders can be achieved with systematic fit of organizational governance w.r.t environment.Moral and ethical issues are implicit in economic and social performanceEmployees when given attention the feel being honoredPrincipal & Principle Theory20Principal & Principle Theory21L1S12MBAM0079Maham RashidFollower Assumptions About Ethical GovernanceAccording to Chester Barnard Purpose of organization was to obtain the cooperation and followership of employees and to direct joint efforts to achieve desired goalsAn organization was a system of consciously coordinated personal activities or forces that achieved results based upon the willingness of person to contribute efforts to the co-operative systemPrincipal & Principle Theory22Five Key Governance Issues for Followers/EmployeesWhat is the organizations purpose?What are the rules?What is my role?How am I valued?What is our future?Principal & Principle Theory231:What is the Organizations Purpose

According to principal theoryCreate short term profit for principals

According to agency theoryOrganization led by agent creates profit for principals

According to stakeholder theoryBalance stakeholder interests

Principal & Principle Theory241:What is the Organizations Purpose

According to stewardship theoryMaximize long term wealth to optimize benefits for all

According to principle theoryDemonstrate significance of values or beliefs

Principal & Principle Theory252:What Are The RulesAccording to principal theoryPrincipals define the rules

According to agency theoryAgents defines rules on behalf of principals

According to stakeholder theoryRules promote compromise to balance everyones interest

Principal & Principle Theory262:What Are The RulesAccording to stewardship theoryRules have an ethical base to ensure everyone's best interest

According to principle theoryCore values and beliefs define the values

Principal & Principle Theory273: What is My RoleAccording to principal theoryEmployees are firm resources and power is retained by principals According to agency theoryEmployees produce value in an exchange relationship and their role is instrumentalAccording to stakeholder theoryEmployees are stakeholders to whom a balance of benefits is due

Principal & Principle Theory283:What is My RoleAccording to stewardship theoryEmployees are empowered owners and partners in creating wealthAccording to principle theoryEmployees are required to adhere to values, beliefs and principles upon which the organization is based

Principal & Principle Theory294:How am I ValuedAccording to principal theoryEmployees are fundamentally a means to serve the ends of principalsAccording to agency theoryEmployees have worth to the degree that they add valueAccording to stakeholder theoryemployees are called stakeholders but are not equal; with others

Principal & Principle Theory304:How am I ValuedAccording to stewardship theoryEmployees are valued as ends in themselves and have values and needs that are respectedAccording to principle theoryEmployees are valued as a means to carry out the beliefs, values and principles that govern the firm

Principal & Principle Theory315:What is Our FutureAccording to principal theoryThe firm has value to the degree that it generates wealth for the principalsAccording to agency theoryThe firm generates wealth and is expected to grow so that ongoing wealth can be created to benefit principalsAccording to stakeholder theoryThe firm can benefit all stakeholders and balance their needsPrincipal & Principle Theory325:What is Our FutureAccording to stewardship theoryThe firm creates value for society and all stakeholders by maximizing long term wealth creation

According to principle theoryThe firm continues to exist to demonstrate the significance of the beliefs, values and principles upon which it is built.

Principal & Principle Theory33Principal & Principle Theory34L1S12MBAM0080Umair JavedContribution of PaperExpands the dialogue about organizational governance and its ethical assumptionsStewardship theory normative values & instrumental wealth creationCynicism of employees towards leaders of the companyFactors impacting organizational trustworthiness, justice and employee commitmentPrincipal & Principle Theory35