Governance and Stewardship

Student Name
INSTITUTIONAL AFFILIATION(S)
GOVERNANCE AND
STEWARDSHIP

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Table of Contents
Introduction................................................................................................................................2
Governance theories...................................................................................................................2
Stewardship theory contribution to effective governance..........................................................7
Relationship between leadership values and beliefs to effective governance in organisations. 9
Conclusion................................................................................................................................10
References................................................................................................................................11

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Introduction
Organisations are considered as prime and most dominant institutions throughout the
globe as they have reached every corner of the world in different sizes and with diversified
stimulation and competencies. Corporate governance can include public and private
institution inclusive of regulations and laws which combinedly governs relationships between
market economy, entrepreneurs and corporate managers. Adebayo, Ibrahim, Yusuf, & Omah
(2014) states that, “A good corporate governance calls for a solid theoretical framework
which recognises and manages risks” (p. 173). Indeed, among all other governance theories,
stewardship theory is been rooted in organisational sociology and psychology since this
theory recognises the significance behind organisation structure which empowers the leaders
or stewards by offering maximum autonomy that is built upon trust. In this context, it can be
said that leadership and governance combinedly emphasis the ability of leaders that can
establish positive relationship by creating trust and duty-based relationship with its followers.
Henceforth, this summative paper will analyse governance and stewardship theories that
informs how organisational effective leadership can be realised and find stewardship theory
contribution in bringing effectiveness to non-profit and profit organisations. This paper also
proposes to discuss the relationship between leader’s or stewards’ values and beliefs for
bringing effective governance within organisations. All the work in this paper are supported
by academic theories and research papers that incorporates ethical principles and biblical
concepts.
Governance theories
According to Yusoff & Alhaji (2012), most of the research made upon governance
theories has been derived from agency theory as this theory focuses upon separation of
ownership from management and regards governance as a technique in which board of

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directors are crucial in managing corporates to minimise issues occurring due to principle-
agent relationship. With this context, it can be noted that agents act as mangers, principals are
board of directors and owners are the ones who monitors the entire organisational
mechanism. According to Adebayo, Ibrahim, Yusuf, & Omah (2014), firm is not an
individual, but is regarded as a legal fiction in which conflicts between individuals takes
place and are brought into equilibrium due to frameworks based upon contractual
relationships. Such contractual relationship not only helps the employees, but also firm’s
suppliers, creditors and customers. The intention behind creation of such contracts is that
every party associated with the organisation are motivated and act according to their self-
interest to bring organisational effectiveness, reduce agency costs and implement
accountability processes that reflects efficiency in their own way.
The agency role performed by leaders of the organisation refers to the functions of
governance that shows interest in serving stakeholders by ratifying decision made by owners
and monitor the strategies undertaken by them. The role of leaders in organisational setting
has been examined extensively in literature and according to agency theory’s principle-agent
model, principals are risk neutral whereas agents or the leaders are rent seekers or risk averse.
This theory further proposes two conditions: first one states that if outcome of relationship
contracts is based upon incentive, then the agents will perform in favour of principal. Second
condition states that if principal have information about agents, the actions performed by
agents will be automatically disciplined and ethical (Panda & Leepsa, 2017). However, the
author criticises that agency theory focuses only upon agent and principal conflicts,
realignment of both parties involved and agency, costs to reduce agency issues, but
stakeholder’s theory recommends few modifications like risk awareness, equitable
compensation, agent’s motivation and time preference.