Governance and Stewardship

Running Head: MANAGEMENT
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Governance and Stewardship
6/5/2019

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Contents
Introduction...........................................................................................................................................2
Corporate governance in Organisations.................................................................................................2
1. Agency theory...........................................................................................................................2
2. Stakeholder theory.....................................................................................................................3
3. Resource dependency theory.....................................................................................................4
Stewardship theory in organisations (Profit and non-profit)..................................................................5
Leader’s value and contribution to governance in organizations...........................................................7
Conclusion.............................................................................................................................................9
References...........................................................................................................................................10

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Introduction
The report brings about the discussion on the concept and theories of governance and
stewardship that considers the concept of effective leadership in the organisations. The
organisations here include both, profit and not-for profit organisations. The concept of
corporate governance refers to the set of policies and business practices, which determines
the functioning of the organisation. The other concept of stewardship refers to the aspect of
showing willingness for being accountable for the functioning of the organisation through
operating in service, rather exercising the control (Kim, Eisenberger & Baik, 2016).
Therefore, the discussion will carry out the assessment of the theories of corporate
governance and contribution of stewardship. The theory of stewardship involves the role of
stewards to attain objectives. Besides, the discussion will also involve the leader’s values and
their beliefs leading or determining effective governance in organisations. Thus, the readers
will gain an understanding of the concept of effective governance in businesses, affecting
their performance in longer period.
Corporate governance in Organisations
The concept of corporate governance refers to the process of decision-making,
including the practices determining implementation in business organisations. A number of
theories have been found relevant that describes the relationship between different
stakeholders while carrying out the business activities. In business organisations, managers
apply various theories of corporate governance such as stewardship theory, agency theory,
stakeholder theory, transaction theory, political theory, and others. Discussing in general,
three major theories of corporate governance contribute to effectiveness of the organisation.
These theories include agency theory, stewardship theory, and the stakeholder theory that
facilitates attainment of objectives and determining compliance to the ethical and legal
standards of doing business (Tricker & Tricker, 2015).
1. Agency theory
The concept of ‘agency theory’ is described as the relationship between the principals and
agents, i.e. shareholders and managers or company executives. Under this theory, the
shareholders are the principals or owners of the company and they hire agents to perform

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the work. The role of the principals , here shareholders is to delegate the responsibilities or
work to the managers or directors, i.e. agents of the firm (Nikula & Kivistö, 2018).
One of the key characteristics of agency theory includes ‘ownership and control, therefore
employees are held accountable for their tasks and responsibilities. The use of rewards and
punishments is considered important for correcting the priorities of the agents. In this theory,
the agent may become self-centred or opportunistic behaviour, and may fall short of
maintaining effective balance between the principal aspirations and the duties of agents. An
aspect of the positive approach has been used in the theory, stating that principals control or
enforce the rules to be followed by the agents, aiming to maximize shareholders value. The
increase in shareholder value lead to better management and governance of the organisation.
Hence, it can be stated that a more individualistic approach has been implemented in this
theory. The implementation of agency theory determines good corporate governance and
determines effective compliance to the orders, leading to organisational effectiveness (Bosse
& Phillips, 2016).
2. Stakeholder theory
The concept of stakeholder theory, explains the accountability of the organisation towards
their stakeholders i.e. customers, suppliers, investors, shareholder, and community. The
aspect of relationship of the managers with these people is considered vital, determining their
role in decision-making. Therefore, stakeholder theory explains the fulfilment of the interests
of the stakeholders, enhancing their satisfaction. Here, the managers emphasize the effect of
the corporate activity on the stakeholders associated with the firm. The managers consider
the interest and expectations of the key stakeholders, in the process of governance
maintaining effectiveness of the firm (Abdallah & Ismail, 2017).