The RTY company has a board of eight directors. Ten senior managers are responsible for different departments in the company, including establishing appropriate internal control systems. Each senior manager provides a report to the board on a quarterly basis explaining the performance of their department. An internal audit department monitors the internal control systems and reviews the senior managers' reports. The chief internal auditor then provides a separate report to the board on the work carried out by the internal audit department.

Required: Using examples from the RTY company, explain the key concepts of agency theory. 

In a recent board meeting, the chairman of RTY commented that too much attention was being given to satisfying the interests of the community and the environment â he reminded the board members that the only aim of the RTY Company was to provide for the needs of the shareholders. The other so called 'stakeholders' were important to the company, but only in so far as RTY needed those stakeholders, RTY could affect the stakeholders; they could not affect or be allowed to affect RTY.

Required: Explain the concept of 'stakeholder theory' and discuss whether the chairman's views are correct in the context of this theory. Include in your answer examples of stakeholders of the RTY Company. 

Answer rating: 100% (QA)

The concept of stake holder theory is that organizations are obligated to satisfy the interests of all stakeholders not just shareholders St ake holde... View the full answer