The article by Russell Hotten aims to explain the scandal that hit Volkswagen. The second question aims to bring out the role of investors and activists owing to their increased pressure on companies such as Volkswagen (Hotten 2015). The question asks the role of investors in resolving the crisis that hit Volkswagen, regarding its cover-up on environmental pollution. The agency and stewardship theories are used in addressing this question.
Agency theory argues that boards of directors often act to protect their interest instead of focusing on benefits of the entire organization (Bosse & Phillips 2016). Actions by the executive management often result in a conflict of interest in an organization. The conflicts, therefore, put many organizations in a precarious situation leading to mismanagement. The stewardship theory argues that executive management of an organization share similar interests with shareholders (Glinkowska & Kaczmarek 2015). This assumption thus makes them adopt and implement the best strategies to ensure the success of an organization. According to the theory, executive management exercise delegated authority on behalf of its investors. Executive management should thus seek to obtain a win-win for all the stakeholders.
The investors of Volkswagen refer to shareholders that have invested their funds in the business. Shareholders exercise their authority and power by electing members of the board of directors hence helping to militate against the weaknesses of agency theory. Through this, investors have an opportunity to influence the direction and future of a firm (Strine 2014). Investors could have used their powers of voting to elect people with reputable character hence leading to the adoption of favorable strategies for the firm. However, the shareholders cannot be blamed for the use of defeat device to influence the outcome of the test. This is in line with stewardship theory that lays full responsibility and accountability on the part of executives. Shareholders may not possess the full knowledge of the daily operations of the organizations. Investors also should use their voting power to ensure that executive management of Volkswagen takes full responsibility for their actions once found culpable. It would help in increasing accountability and would have avoided the occurrence of the scandal. As much as investors have a role and responsibility to resolve the scandal, they have limited powers since they are not involved in daily operations of Volkswagen.
Investors indeed have a role to play in ensuring that organizations move on the right path. In the case of Volkswagen, the investors ought to have used their voting power to elect responsible persons following the initial signs of the scandal. They have one of their representatives on the board who participates in the decision-making process by the board hence representing their interests. However, their authority is limited since executive management may conceal such information from its stakeholders.
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers. You can order our professional work here.