Governance and Stewardship: A Comparative Analysis of Theories and their Impact on Organizational Effectiveness

This paper explores key theories of governance, including agency theory, stakeholder theory, resource-dependence theory, and stewardship theory. It examines the contribution of stewardship theory to effective organizational governance in both non-profit and for-profit organizations. The paper also analyzes the relationship between a leader's values and beliefs and effective governance, highlighting essential leadership qualities for good governance. Through a comparative analysis of these theories and their practical applications, the paper provides insights into the complexities of organizational governance and the crucial role of leadership in achieving organizational effectiveness.

ASSESSMENT 3
Governance and Stewardship Paper
Student Name: Rahul Sachdev
Student ID:
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Table of Contents
Introduction......................................................................................................................................3
Discussion of key theories of governance that have contributed to organizational effectiveness...4
Agency Theory............................................................................................................................4
Stakeholder Theory......................................................................................................................5
Resource-Dependence Theory.....................................................................................................6
Contribution of Stewardship theory for effective organisational governance in non-profit and for-
profit organizations..........................................................................................................................8
Defining Stewardship Theory......................................................................................................8
Contribution of Stewardship Theory on governance in non-profit organisation.........................9
Contribution of Stewardship Theory on governance in profit organisation................................9
Theoretical tenants of stewardship theory.................................................................................10
Relationship of a leader’s values and beliefs to effective governance in organizations................11
Defining Leadership..................................................................................................................11
Good Governance......................................................................................................................11
Essential and effective leadership qualities for good governance.............................................11
Conclusion.....................................................................................................................................15
References......................................................................................................................................16
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Introduction
This assignment attempts to evaluate and analyse diverse concepts of governance in accordance
with diverse authors and literatures; its effects on organisational effectiveness, contribution of
stewardship theory within profit and non-profit organisations. This assessment is further
extended to reflect the relationship between leadership values and beliefs leading to effective
organisational governance. An emphasis is laid on corporate segment, including both profit and
non-profit organisations for elaborated projection of this assignment. This assignment develops a
perspective on various governing factors that a leader may possess in effective governance.
Significant support had been included from various examples and cases.
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Discussion of key theories of governance that have contributed to the organizational
effectiveness
With an aim to attain enhanced accountability within an organisation and to effectively manage
the processing, avoiding any disorder, governance among any organisation is inevitably
important. The main purpose of the application of this phenomenon is avail prudent management
for a long-term success of adopting firm (Aura, et. al., 2015). Corporate governance can be
termed as a scheme or mechanism through which any company is controlled and directed to the
process.
For frequent analysis and evaluation, governance has been divided into several theoretical
frameworks. A few of them, which have been popularly used, is described as follows:
Agency Theory
When assembled in simple words, this theory is applied when there is a need to understand
relations between agents and company principals. Resulted from diverse aversion levels to risks
and mismatched goals, the problems that exist in agency relationship are resolved using agency
theory.
Figure 1: Agency Theory
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(Source: Islam, 2014)
As reflected in figure 1, major conflicts and congruence reasoning among agent and principal
have are risk, self-interest, obligation and reciprocity etc. With the effective implication of this
theory Australian Charities and Not-for-profit Commission’s (ACNC’s) major legislative and
societal frameworks had been resolved (Reynolds, 2014). A governing board is formulated
through which a controlling trend is exercised, supervised and monitored on a long go. The
board is directly involved in every major and minor decisions making and management. They are
held accountable to the stakeholders.
Major application benefits that can be enjoyed emphasising are monitoring and bonding
arrangements. Further extension and tentative adoption can be concentrated on legal, normal
science and economic sectors apart from management and corporate sector.
Stakeholder Theory
Under this theory, a notion is raised for adopting organisation to be held with responsibilities
towards a wider group of stakeholder and not just restricted merely to a shareholder of the
company. Sound organisational relations can be established with exercising of good governance
that attempts to serve all its stakeholders (Neesham, et. al., 2017). The effectiveness is enhanced
with the engagement of reasonable timelines to be followed while addressing them. Both in
private and civil society organisations, the decision makers are accountable to the public in
addition to its stakeholders, thus referring to this theory’s accountability feature; however, this
may vary with the external or internal nature of an organisation.
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Figure 2: Stakeholder model
(Source: alpha.fdu, n.d.)
Stakeholder theory engages the existence of clients, suppliers, customers and whole surrounding
communities as stakes within a corporation, as presented in figure 2, who is as well affected by
success rates of an organisation. Thus to ensure significant returns to all the stakes, this theory
binds managers with obligations. One major profit based organisation following this approach is
GHD Group. It is a multi-national service providing organisation with private stakeholders
(Bryson, 2018). The organisational policies have taken its entire trustworthy and engaged stakes
into accounts, thus providing significant returns in accordance with company’s state.
Resource-Dependence Theory
Every working organisation requires an endless and seamless flow of resources to perform to its
potential. This need to be linked to resource environment is being considered under resource
dependence theory (Bernstein, et. al., 2016). This theory engages means to tactically manage the
links of external resources and their impacts on the organisation. Board is proposed to be
involved in any advocating process such as human, financial and intangible supports.
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Figure 3: Resource Dependence Theory and its impacts on organisational processing
(Source: Delke, 2015)
The resource holder may have some right to exert power and control over decisions or
organisations which is dependent on that resource availability. The theory urges the key to
organisational instincts and survival is its result orienting ability to attain, manage and maintain
resources. The resource elements include desirable service and products, processing,
organisational structures and processes, as reflected in figure 3. A continuous stream of supply is
inevitable for the survival of any organisations.
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The contribution of Stewardship theory for effective organisational governance in non-
profit and for-profit organizations
Defining Stewardship Theory
Contrary to agency theory, this theory proposes that management must be left to act on own will
with the least amount of intervention for significant responsibility to be accounted of the assets
they possess. The board formed specially to deal with the situation under agency theory are
argued to not be too controlling whereas must support potential in order to attain enhanced
performance (Council, 2015). The stewardship theory can be said to hold such situation where
ownership of the company does not play a major role in consideration, on the other hand, is
merely holding it in trust which can be seen in figure 4.
Figure 4: Stewardship theory model
(Source: ResearchGate, 2018)
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This theory emphasises service over self-interest, availing achievement of both individual and
organisational needs at its best by relationship honouring. Under its application in firms such as
Coca-Cola, organisational managers and executives are strictly aimed to conserve and make all
possible profits for the shareholders. This was not the case in agency theory where self-interest is
the aim to be attained as a result of work.
Contribution of Stewardship Theory on governance in a non-profit organisation
In the area of non-profit organisations there exist several acknowledged sets of shared goals
among the contracting parties. Considering the case of Australian Charities and Not-for-profit
Commission’s (ACNC’s), the management tools are specifically used to establish ensured
alignment of goals among the dealing parties (Van, et. al., 2016). Collective goals are primly
targeted in stewardship. Stewards make the best decisions that are more in the interest of their
principals. The major motivational means is reward management, for example, trust, enhanced
responsibility level, increased reputation, job satisfaction, etc.
At initial stages, the stewardship approach may result into higher transaction costs than those in
agent theory adoption due to a greater investment of time from principal part that involves
steward within the formulation of a problem, decision making, understanding and exchanging
information and thus managing relationship. But with time the cost may reduce with better
understanding and relation terms between engaging parties and aligned objectives, actions,
motives and signals (Viader & Espina, 2014). This enables the adopting organisation to achieve
greater funding stability. This also results in fewer monitoring requirement in contract definition,
structure and implementation.
Contribution of Stewardship Theory on governance in profit organisation
In the views of Liburd & Becken (2017), the managers under stewardship work on behalf of the
owner, regardless of his self-interest for the collective good of the profit based organisation. The
steward or manager engages to believe that ownership shall equitably share claims from the
organisation. Thus any enhancement in those claims for the true owner enhances the claims of
manager, thus establishing a direct alignment in interests of owners and manager.
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In private profile organisation, this theory focuses on situational mechanisms and psychological
factors that drive to formulate desirable steward behaviour (Benn, et. al., 2014). Considering the
case of McDonald's, the CEO needs to structure corporate governance of the form, is also in need
to be at a high level of discretion and authority. This is to do in order to uplift the organisational
performance level. He has the power to extract rents for himself at the expense of shareholders.
Taking minimum personal risks and sometimes also entrenching themselves as an organisational
leader is a few drawbacks to this approach.
Theoretical tenants of stewardship theory
 Goal alignment can be attained via initial trust disposition. Philosophy management,
sociology, psychology and organisational behaviour are driving factors for stewardship.
 Stewardship theory empowers worker via autonomy, responsibility, personal power and
trust, shared culture and norms, etc.
 A few applications of steward theory can be as listed:
Reduction of threat in terms of information asymmetries, asset specificity and moral hazards etc.
(Liburd & Becken, 2017)
- Goal alignment due to shared trust, objectives and motives
- Reduced dependency on legal contracts
- Sanction and incentive being used as reputation
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Relationship of a leader’s values and beliefs to effective governance in organizations
In the absence of an effective leadership in addition to effective form governance at all the levels
of profit and non-profit organisations, it is impossible to sustain and achieve efficient
administration and organisational objectives. Sustainment in service quality, offering delivery
and aim attainment is next to impossible as well. In the current market segment with ever
increasing complexities and customer based pull market, the notion to grow productive can only
be achieved with the implication of effective leadership (Abulu, 2017). A parallel growth of
impacting leadership and effective organisational governance is a successful consideration from
stakeholder’s view.
Defining Leadership
Leadership is a phenomenon where a person impacts and influences others to work in order to
achieve a goal for organisational benefits. He also drives the organisation towards being more of
coherent and cohesive (Léautier, 2014). Leadership is all about maintenance of relationships in
order to achieve a common goal. Influencing the motivations of the engagers to the level where
they commit and willingly devote their potential in the attainment of the certain goal. It is all
about significant interaction, pure and influencing integrity, and trust among leader, followers,
employees, customers and shareholders, etc.
Good Governance
It can be termed as the involvement of effective participation, accountability, transparency and
rule of law among anything that is executed (Bolden, 2016). Good governance within any
organisation always emphasises on becoming voices of the most vulnerable section in the
decision-making process over developed resources. It keeps political, economic and social
priorities on stakes and effectively manages them to ensure well-balanced decision.
Essential and effective leadership qualities for good governance
For a team to work effectively towards organisational goals in order to practice in directed and
controlled processing, balancing the interest of all its stakeholders, a few standards are in need to
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be met with (Léautier, 2014). It is crucial for a leader to manage his thought process and
behaviour adapting to necessary qualities, a few of which are described as follows:
 Accountability
A good leader must be accountable in nature and practices. This quality is a concept
under which ethics responsibility for ant action outcome, blameworthiness;
answerability, liability etc. are expected to be provided to stakeholder to the
organisational values. This quality has remained to be the center of all the values to
be attained in both the profit and non-profit based organisations (Abulu, 2017).
Any leader with accountability is highly acknowledged and submitted with
responsibilities as the reward in corporate governance. He is held with actions,
decisions, policies and products in order to manifest risks for both failure and success.
He is obliged to report and be answerable to any exposed consequence.
 Relationships
In corporate governance, effective management and impacts are, in the current
scenario, a result of effective communication skills. A good leader must maintain a
healthy and positive relationship with all the stakeholders of any organisation
(Léautier, 2014). He must be constructive in terms of communication. Governance
can be executed seamlessly with the adoption of effective communication links.
In order to achieve targeted goals and collectively take the organisation along, some
contextual hands are in need to be engaged. A good leader is not only good at
delivering words but also is a good listener who avails ears to all the sections of
organisation for efficient voice placement in decision making.
 Integrity
It is essential for a leader to be open to new arenas, ideologies, and challenges for
maintenance of nourished work-environment within the organisation. He must be
prepared and ready for changes. Recognition of efforts, choices that are prone to
changes etc. must be understood and must not be resisted.
Governance in an organisation can be effectively improved when changes in
processing to lessen efforts and increase productivity is induced (Abulu, 2017). A
good leader with strong guiding principles can influence the employees and lead to
compromises where needed.
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 Values
The character of leader defines the success rate of governing figure. Values that are
possessed by any leader determine the quality, excellence, worth and work results of
any leader (Schultz, et. al., 2015). Considerable knowledge, considerations, morals
are governing factors or value worth a leader that makes the organisational structure
under him believe their leader. Culture and society in contact with a valued leader
have uplifted standards that last for a long time.
 Influence
The most important quality that essentially affects the governance integrity is the
power that is possessed by the leader. The impact of influence that leader has is
crafted by a quality leader to attain the principles of organisation to the fullest
(Léautier, 2014). An influencing leader can shape the performance and processing
level of leading organisation with his unique leadership style.
 Competence
This is the quality that affects any leadership the most. A good leader must be visible
to his followers. He must stand out in performance and most other qualities for his
followers to be lead. A quality leader must be professional in terms of his
performance and work processes. The understanding due to higher competency in
leader enables him to understand his employees and include their opinions in an
innovative way in all his decision makings.
With enhanced leadership qualities, governance can be influenced to rise thus improvising the
performance of the organisation. The major characteristics that get affected are participation of
workforce, transparency among organisational structures, increased responsiveness, and effective
rule of law, improvised inclusiveness and equity (Schultz, et. al., 2015). Accountability is the
major property to be affected.
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Conclusion
Governance and stewardship play a major role in ensuring the organisational processes to be
lawfully executed to the best quality in consideration of its stakeholders by being transparent,
accountable and integral etc. Diverse concepts of governance in accordance with diverse authors
and literature had been explored; their effects on organisational effectiveness, contribution of
stewardship theory within profit and non-profit organisations have been analysed. The preceding
module further was extended to reflect the relationship between leadership values and beliefs
leading to effective organisational governance. An emphasis had been laid on corporate segment,
including both profit and non-profit organisations for elaborated projection of the assignment.
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References
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