Stewardship and Governance: Theories and Contributions to Effective Governance

STEWARDSHIP AND
GOVERNANCE
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Table of Contents
Introduction................................................................................................................................2
Governance theories...................................................................................................................3
Agency theory........................................................................................................................3
Resource dependency theory..................................................................................................4
Stakeholder’s theory...............................................................................................................5
Stewardship theory and its contribution in bringing effective governance................................6
Non-profit organization..........................................................................................................7
Profit organization..................................................................................................................8
Relationship of a leaders’ value and beliefs to effective governance in organisations..............9
Conclusion................................................................................................................................10
References................................................................................................................................12

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Introduction
Good governance theory is developed out of set of policies or principles that were
first introduced by World Bank while providing assistance to third world countries and
developing nations. Good governance states how organisations can realise efficiency by
governing and taking accountability of stakeholder’s interest. To bring effectiveness in
organisations, governance systems act as ethical principles and attitude of leaders or chosen
directors to operate in ethical manner that not only provides effectiveness to business
operations, but consider wellness of overall community attached with it (Ekundayo, 2017).
One of the most efficient manner to retain organisational effectiveness is providing
organisation with active and mindful leadership. When leaders fail to promote an
environment of honesty and integrity, the result always reflects regression and intimidating
for business environment rather than showing honest and open cultural climate. In this sense,
it can be said that best leaders are those who can nurture organisational integrity after
combining his/her personal action, beliefs and values (Tiller, 2011). Similarly, stewardship
theory assumes that to bring organisation successes, it is important to establish a relationship
between organisational goals and satisfaction of its principals. The steward’s role is to
maximise and protect prosperity of organisation’s along with ensuring good governance so
that moral principles and utility functions are maximised effectively (Rahmawati ,
Moeljadi , Djumahir, & Sumiati, 2018). This summative paper will discuss seminal
theories of governance and stewardship theories that informs how organisational
effectiveness can be recognised through leadership values and beliefs. This paper will use
scholarly articles and credible sources to make key discussions on theories and research
comprising biblical/ethical principles.

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Governance theories
Agency theory
Agency theory in governance theories is one of the most extensively discussed theory
that demonstrates situations under which principles delegate their control and decision-
making power to agents for accomplishing a desired task. According to agency theory
researchers, the main focus of this theory is to minimise agency conflicts while determining
principal-agent contract and governing relationships between agents and principals. The
contract can be considered a metaphor that describes a relationship between agent and
principal in which payroll, incentives and commissions causes contribution to agency costs
(Rahmawati , Moeljadi , Djumahir, & Sumiati, 2018). According to Panda & Leepsa
(2017), agency theory can be categorised into two models: principal-agent model and
positivist agency model. Both the models consider contractual relationship between agent and
the principal but principal-agent model is regraded as mathematically appropriate. Principal-
agent model describes that principals are profit seekers and risk neutrals, whereas agents act
as rent seekers and risk averse. On the other hand, positivist theory demonstrates the causes
behind agency issues and costs involved with it. This theory further categorises into two
propositions. First proposition reveals that if outcome of principal-agent contract is based on
incentives, the agents tend to act in favour of the principal. However, if the principal has
information about the agent, the action performed by agents remains more disciplined.
According to Yusof (2016), agency theory comes with various limitation in spite
being very popular among governance theories. The authors pinpoints that this theory
assumes that there is a contractual relationship between agent and principal for unlimited or
limited duration, where future always remains uncertain. It is also assumed that contracting
can potentially eliminate agency issues, but faces many hindrances like fraud, information
asymmetry and transaction costs. Stakeholders interest are limited to their returns only, but