Advantages and Disadvantages of Three Main Approaches to Corporate Governance - Essay Example

These three approaches of corporate governance have been discussed in detail below. Three main approaches to corporate governance: Shareholder capitalism: The first approach that has been discussed in this report is shareholder capitalism and in this approach, firms operate to maximize the profitability of the investment made by the shareholders and in decision making, the shareholders of the firm are prioritized the most. The main concept behind the shareholder capitalism approach is that the risk is taken by the shareholders of the firm; this approach says that shareholders should be rewarded for taking the risk and firms should maximize the profits of the shareholders (Kelly, Kelly, and Andrew 172).

While making decisions of the firm; the highest priority is given to the shareholders of the firms so the main objective behind such an approach is to achieve maximum profitability. Stakeholder Capitalism: Stakeholder capitalism is the second approach that has been discussed in the report, and this approach says that all the parties that have their stakes in the firm should be given priority. So while making decisions, all the stakeholders that are influenced by the decision of the company are considered.

The stakeholder capitalism approach would allow the firm to think about different parties that could be affected by their decisions and therefore such an approach should be encouraged because everyone in the society including the suppliers, government agencies and institutions, distributors, shareholders, investors, customers, and other stakeholders play an important part in helping the firm to grow and generate profit. State Ownership: When the decision-making of the firm is made by the government, then it is referred to as state ownership.

The main theme of state ownership is that the government knows what should be done for the benefit of the society; hence, it would make decisions that are beneficial for everyone in the society and priority might not be given to employees, suppliers, distributors, shareholders, investors, and other parties that are involved. The best corporate governance approach.