Governance and Stewardship: Theories and Contributions in Organizations

This article discusses the theories of governance and stewardship, including agency theory, resource dependable theory, and stewardship theory of corporate governance. It also explores the contributions of stewardship theory in organizations and the relationship between a leader's values and beliefs to effective governance.

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Governance and Stewardship
Student’s Name
Institution Affiliate
Date

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Governance and Stewardship
A steward is typically considered as manager, servant or even a caretaker. Stewardship,
on the other hand, implies the responsible and careful management of anything which has been
entrusted to another individual by another person. The key aspect in stewardship is that such
individuals entrusted with any particular property are only managers or stewards and hence they
are accountable to another person. There are also certain key attributes which explain an act of
being a steward and they include, leading with a particular impact such that it entails having the
right to lead without relying on different entitlements which are usually based on the job titles
and organizational ranks. The stewards are expected to lead with through a mobilization of a
variety of stakeholders on the visions of the future and thus inspire them to work towards their
footsteps.
The other particular attribute of steward involves working towards the greater social good
by developing themselves and the organizations with the aim of embracing certain transcendent
values thus work as a team towards a social good. To effect some of the changes that inspire the
other individuals and benefits, everyone, the steward is tasked with leading their groups, teams,
professions and the organization. Further, the other attribute of a steward is that they protect the
future of the particular organization and this they attain by safeguarding the interests of various
stakeholders in a manner which is accountable and visible. There is also various measure which
takes with the aim of protecting the future of an organization which entails developing a climate
which cares and prudence. As a custodian, the steward is expected to practice caution as he or
she handles various duties within the organization and also apply a certain measured technique
towards a particular risk.

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There are a variety of theories of stewardship explaining effective ways of good
leadership in different organizations that is either profit or non-profit making organizations and
this has been discussed below in the paper.
Theories of Stewardship
Agency Theory
It provides an explanation on some of the best ways which can be applied in organizing
different relationships such that a particular party in an organization is concerned with work as
the other person ascertains the particular work. The relationship entails that an agent is hired by a
principal to work on a particular task which the principal does not have the ability to perform.
The theory assumes that the aspect of self-interest is that which motivates both the agent and
principal and this leads to certain inevitable inherent conflicts (Stout & Blair, 2017).
The agency theory is a result of the differences existing between the executives charged
with the running of any particular organization often referred to as the agents and the shareholder
of the particular firm called the principal. According to the theory, the primary objective of any
particular agent is typically different from that of the principal such that they are often
conflicting. When there is a lesser return on investment by the particular company, the
shareholders tend to suffer an agency loss. Some of the returns which they could have given in
the circumstance that they were the agents are taken over by the particular agents who directly
run the particular companies (Bosse & Phillips, 2016). Further, the theory also stipulates that
there are often certain incentives which are often awarded to the executives with the aim of
maximizing profit for the particular owners of the business enterprise. There is also a board of
directors who are in charge of supervision, monitoring and exercising a strict control on the level
of performance of the particular agents with the intent of ensuring that the different interests of

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the owners are safeguarded. It is therefore clear that most of the managerial decision making
process is typically carried out by the board of directors and hence they are generally
accountable to the owners of the particular company. The above mentioned aspects are generally
for the profit making organizations (Honoré, Munari & de La Potterie, 2015). However, for the
non-profit making organizations, a management technique accrued out on behalf of the owners
of the organizations is used by the board of directors to run the affairs of such an organization
and this often conducted via the lens of the agency theory.
Resource Dependable Theory
According to Northouse (2018), the resource dependable theory is a theory which deals in
an effect of the external resources on an organization’s behavior. It is argued that all the
particular resources required by any particular organization is contained in another organization
and such resources are considered as a basis of power. It is based on the principle that for an
organization to obtain particular resources, they have to work together with other actors in a
particular environment. Generally, the different resources needed by an organization are often
scarce and this leads to differences in accessing more resources, power, and authority (Sturgeon,
2016). It is therefore vital for different organizations to aim at establishing certain strategies
aimed at improving their bargaining position and power different transactions relating to
resources.
Further, it explains, structure, behavior, change, and stability of any particular
organization. A fundamental assumption of the resource dependable theory is that there is often
the aspect of uncertainty clouds and dependencies which have made it difficult for an
organization to have control over its resources (Kibaroglu, Schmandt & Ward, 2017).A key
example occurs when there is an increase in the level of dependencies and other uncertainty

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which also results in the need for a particular organization to engage with other actors for
different transactions. According to the theory, the decisions of a particular organization can be
explained on the basis of a dependency situation.
Board of Directors and Resource Dependency Theory
According to the theory, the composition and size of the particular board of directors is
an indication of the ability of a particular organization to obtain various resources. The
environmental needs of a company relate typically to the size of a board of directors of a
company and hence those organizations which have a huge interdependency need a big ratio of
directors (Hatch, 2018). There are certainly four benefits brought into any particular company by
the board of directors and this includes, legitimacy, information which is in the form of counsel
and advice, preferential access to resources and access to different channels of information and
this is typically between the environmental contingencies and a company.
Based on the above mentioned benefits, it can be concluded that the main aim of the
stakeholder directors is to enhance the corporate social performance of the particular
organization. It is therefore of significance that a relationship between the financial institution’s
representation and that of the financial resources is established within the board of directors
(Northouse, 2018). The theory also suggests for the change of the board of directors composition
and this is especially when there is a change in the environment of a particular company. Such a
move is also important when it has been identified that certain other directors from outside may
initiate various positive influence on the performance of a particular company.
Stewardship Theory of Corporate Governance

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According to James, Jennings & Jennings (2017), the steward theory can be argued to be
a fundamental framework which stipulates that individuals working in a particular company tend
to become motivated to carry out different responsibilities and tasks for others which they have
been given. Also, according to theory, individuals are considered to be of the collective mind and
therefore they are non-individualistic towards the achievement of the organizational objectives. It
can, therefore, be concluded that the theory of stewardship is used to characterize the various
motivations of different behaviors of the managers in either the profit or non-profit
organizations. Based on the theory, a steward is defined as that particular person whose primary
role is to provide protection to others and also taking care of their needs. In the theory, the
interests of shareholders of a company are protected by the executives of the company.
Additionally, they tend to make certain decisions on behalf of them. The primary role of
the company executives entails creation and therefore maintenance of the success of an
organization with the aim of ensuring that the shareholders prosper (Glinkowska & Kaczmarek,
2015). The aspect of stewardship can be practiced by a particular firm through the placement of
the responsibilities of both the chairman and CEO in one particular executive while the board of
directors is typically made up of all the in-house members of the particular company.
Based on the above mentioned placement of both the board of directors, CEO and
chairman in a company, a deep commitment, and operations of an organization towards success
is attained. Further, according to the theory, there should be certain clear objectives to allow for
the satisfaction of different shareholders (Le Breton-Miller & Miller, 2018). When there is one
particular leader in a company, there will be one particular channel of communication of a
variety of business needs to various shareholders. Also, confusion is avoided within the
organization and this, therefore, prevents storms. A CEO of an organization is expected to be

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trustworthy and also be willing to put the interests of the organization above his or her own
personal gain and this is according to the steward theory.
Additionally, according to the steward theory, the different employees in a particular
organization are often motivated to work towards the goals of an organization instead of their
own personal interest and this is based typically on the fact that the various cultural and
organizational preconditions have been fully satisfied by the owners of the organization.
Generally, both the shareholders and manager have a common agenda and thus they are
compelled to work together (Shi, Connelly & Hoskisson, 2017). There is, therefore, an emphasis
on the role of the board of directors to establish certain strategies instead of reviewing different
performances in the company. It is important to note that there are certain risks which are often
taken by the shareholders of a particular firm on behalf of the managers. Such risks are taken to
ensure that the managers administer their company and hence offer a high return on investment
which is an indication of a certain trust level by the owners (Gnan, Montemerlo & Huse, 2015).
One of the key criticism of the stewardship theory is that it can result in the exposure of
different risks of failure of governance to a particular organization and also a drift in the
strategies developed by a particular organization in the long run (Wheelen, Hunger, Hoffman &
Bamford, 2017).
Contributions of Stewardship Theory in Organizations
The theory of stewardship has ensured that there are accountability and transparency of
the board of directors in particular organizations. In most of the organizations, the board of
directors is expected to give certain relating to the particular decisions they make and such an
information has to be clear and accurate and this enables the shareholders to comprehend what
actions have been taken by the board on certain issues relating to the particular organization.

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Also, to be accountable, the board provide explanations and even justifications for the decision,
dependencies,risks, and omissions which they are typically responsible for in the organization
(Madison, Holt, Kellermanns & Ranft, 2016). With the accountability of the board of directors
put in place, the board of directors will be considered as legitimate and this is critical for the
particular organization. The absence of accountability among the members of the board of
directors could result in lack of trust in the particular directors by the owners of the company.
The stewardship theory also enables the board of directors and the employees of an organization
to all work towards the specific interest of the organization (Neubaum, Thomas, Dibrell & Craig,
2017). It, therefore, implies that such an individual is only committed to the wholeness, welfare,
and growth of other persons in the society and instead of placing their personal interest above
other people's interests.
Further, the theory has enabled the organization to have a change in the behavior of the
board of directors and this is based on the fact that the directors who are steward tend to act in a
manner which gives an assurance to the particular company in their engagements. Such directors
tend to work true to their word and hence can be trusted by the owners of the organization due to
their loyalty (Neubaum et al., 2017). The other contribution of the theory in organizations is that
it has helped in building relationships and also communication and this is because it provides
accountability among the board of directors in a company.
Relationship of a Leader’s Values and Beliefs to Effective Governance in
Organizations
According to Sendjaya, Pekerti, Härtel, Hirst & Butarbutar (2016), the values and beliefs
of any particular leader have a great impact on the leaders and this can be exhibited in certain
ways. For example, the values and beliefs of a leader help develop values for both the

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stakeholders and shareholders of a particular company. Based on that it can be concluded that
values and beliefs help in shaping the vision of a leader to create value in an organization making
such an organization become effective. Often leaders with greater vision have the ability to
motivate the workplace culture in a particular organization with the intention of implementing
the various strategies aimed at attaining the key goals and objectives of an organization (Bryson,
Crosby & Bloomberg, 2014). Further, the values and beliefs of a leader are often used as one of
the vital elements of a strategy. The two aspects are considered to be some of the crucial
elements of competitive strategy which can be adopted by any particular organization. With such
aspects incorporated in a competitive strategy, an organization is made effective based on its
operations and other performances (Lawton & Páez, 2015). The values and beliefs of a leader are
also important to achieve effectiveness in an organization since the two attributes are used as
perceptual filters by particular organizations. The different leaders in a variety of companies tend
to use their beliefs and values to give different views of the external environment and this,
therefore, shapes up different aspects. Such aspects entail strategic behavior, choice and the
performance of an organization. Based on a particular study which was conducted, it was found
out that the values and beliefs of the leaders tend to have a direct implication on the performance
of an organization and hence its effectiveness.
The demand for Governance Theory for Corporate Governance
The corporate governance theories are classified into various types and this includes, the
orthodox theories, management theories on board,neo-institutional theories, micro theories, and
contingency perspective theories among others (Tricker & Tricker, 2015). Corporate governance
is a complex, interdisciplinary and multi-paradigmatic concept and therefore there has been a
high demand for the various theories of corporate governance. The demand for such theories has

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also been attributed to fact that there are numerous relationships existing in different
corporations and that such relationships are either inside or outside. The theories of governance
can also be applied to solve different problem areas which can be typically be applied in similar
or even different market conditions and hence the increased demand for the governance theories
(Aguilera, Judge & Terjesen, 2018). Also, the increased demand for the governance theories has
been attributed to the numerous dynamics in the economy which have made operations of
various corporations difficult for the management and also the owners of such business.

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