Corporate Governance: Stewardship, Leadership, and Theories Analysis

This essay provides a comprehensive analysis of stewardship and governance theories, exploring their impact on organizational effectiveness. It begins with an introduction to good governance and its principles, emphasizing the importance of ethical leadership and organizational integrity. The essay then delves into key governance theories, including agency theory, resource dependency theory, and stakeholder theory, examining their strengths, limitations, and relevance to modern organizations. A significant portion is dedicated to stewardship theory, highlighting its contribution to effective governance, particularly in non-profit and profit organizations. The discussion includes the relationship between leaders' values and beliefs and their influence on organizational governance. The essay draws on scholarly articles and credible sources to support its arguments, providing a nuanced understanding of the theoretical underpinnings of corporate governance and leadership.

Institutional Affiliation(S)
[Course title]
stewardship and governance
Student Name

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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

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very little is been described about their role in this theory. Moreover, this theory considers
managers as opportunistic rather looking upon their competencies that have made many
ethicists consider other governance theories for enabling organisational effectiveness in more
ethical way.
Resource dependency theory
According to Chambers, Harvey, Mannion, Bond, & Marshall (2013), resource
dependency theory in corporate governance has derived from sociology and economic
perspectives that are concerned with power distribution within firms. According to this
theory, organisations constitutes as a mixture of intangible and tangible assets along with
capabilities. Strategic resources are particularly referred to those which are valuable, unique
and non-substitutable. In this sense, it can be said that organisation’s board can be taken as
strategic resource. Since organisations depend on each other to thrive and survive, resource
dependency theory states that the prime purpose of the board remains managing external
relations so that it can leverage and influence organisational effectiveness and therefore,
board are been selected according to their background, skills and contacts so that they are
able to establish good governance. Mintzberg stated that, “It is the manager who determines
whether our social institutions serve us well or whether they squander our talents and
resources” (Kumar, 2015, p. 12). Accordingly, board acts as a mediator between external and
internal coalitions that faces towards the management and towards other shareholders. The
use of board can also be said as a co-optative instrument which reflects potential of board
members who fosters relationships with major external constituencies so that important
elements of external environment are co-operated within internal environment of the firms.
As per study made by Davis & Cobb 92010), it can be said that resource dependency
theory focuses more upon the causes behind uncertainty by external environmental factors
and firm’s dependence on external organisations can be reduced so that good governance is

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reflected within firms. Board can enable four basic benefits in the management including
access to information, advice, legitimacy and preferential access to the firm’s resources.
Drawing from resource dependency theory and Marxist sociology, class hegemony theory
can be derived according to which board members and other governing bodies in culturally
diverse society looks forward in continuing a ruling technique. This theory particularly
suggests that to head a small people group or direct large organisations through exercising
economic, social and political power and after imposing ruling-class world view. This theory
can be justified by an approach towards world view, taking it as a beneficial factor not just
for ruling class, but for the community as well. In this relation, organisation board amounts to
an inner circle who are given authority to constitute and formulate distinct and semi-
autonomous powerful networking that deeply embeds society and community as a whole
(Chambers, Harvey, Mannion, Bond, & Marshall, 2013).
Stakeholder’s theory
According to Ali & Abdelfettah (2016), “Stakeholder management has become an
important tool in recent decades to transfer more compatible ethical theory to management
practice and strategy” (p. 50). First embedded in the year 1970, stakeholder’s theory was
gradually developed by Freeman that incorporated corporate accountability to organisation’s
stakeholders. Many governance theorists and researchers argue that stakeholder’s theory is
combination of both sociology and organisation principles. This theory is less formal and
unified in nature and follows broader research tradition after incorporating ethics, political
theories, philosophy, law and organisational behaviour (Abdullah & Valentine, 2009).
Normative approach of stakeholder’s theory, on the other hand are more based upon
corporate social responsibility, corporate legitimacy principles and fiduciary principles in
which two sorts of legitimacy are complimentary to each other.

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The first principle of stakeholder’s theory reveals that stakeholders who poses
abilities to affect the organisations in positive way are legitimate whereas second principle
state that legitimacy is derived out of moral obligations and are owned by different
stakeholders. In other words, it can be said that normative stakeholder’s as those individuals
to whom firms has some moral obligations like stakeholder’s fairness and to act as a social
actor by following virtue ethics (Ali & Abdelfettah, 2016). Arguably, Harrison & Wicks
(2013) claims that “Stakeholder theory is not the same as corporate social responsibility
(CSR) theory” (p. 860). According to the authors, this theory was not introduced for
promoting organisational behaviour or policies that are more associated with social groups
like environmental concerns or corporate philanthropy. Instead, it is believed to be more
based upon management theory that considers moral treatment of stakeholders unlike moral
theories that might show relevancy to the management. However, this was just the initial
position that have now splintered into number of ways and is interpreted in different manner
and in useful ways ( Harrison & Wicks, 2013).
Stewardship theory and its contribution in bringing effective governance
Stewardship theory is one of the most significant within corporate governance
theories that is based upon both sociological and psychological perspectives. A firm’s
steward always looks for ways to maximise shareholders profits through effective
performance and by doing so, steward’s self-utility function also gets maximised. It can also
be said that stewards are firm’s managers and executives who works for stakeholders to make
profits for them by integrating their utility with firm’s objectives. Stewards perspectives
states that stewards are motivated and remains satisfied when organisational success is
accomplished. However, Rahmawati , Moeljadi , Djumahir, & Sumiati (2018) argues that
stewardship theory focusses more on significance behind organisational structures that

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provides them with empowerment and autonomy and ones which are built upon trust. It
stresses on employees and executives’ position to act autonomously so that return of
shareholders is maximised alongside minimising costs involved in monitoring and controlling
organisational behaviour.
On contrary, Abdullah & Valentine (2009) says that to protect their own reputation in
the place of decision maker within firms, directors or stewards are inclined to operate in a
way that maximises firm’s financial position along with shareholder’s profits. In this sense, it
can be taken that firm’s performance can impact perceptions of steward’s or leader’s
performance and thus stewardship theory can be related to Kant’s deontology theory.
According to Kantian philosophy, to make a moral decision, it is essential that the decision
maker remain autonomous, and rational in decision making. Autonomy is necessary for
making ethical decisions since it frees decision makers from the pressure of personal desires,
threats from negative repercussions or any other biasness seen during decision making
process. Therefore, it can be said that autonomy can be considered as freedom for making
decision according to morally correct views in universal sense rather than reflecting self-
interest concerns (Michaelson, Pratt, Grant, & Dunn, 2014).
Non-profit organization
Non-profit organisations include board of director who are concerned with
maximising overall profitability through strategic direction and control. In literature, good
governance is been interpreted after analysing key characteristics of leader’s that fulfils every
moral and ethical obligations promoted by board. In such, non-profit organisation is
responsible for undertaking role of strategic planning, looking upon legal and governmental
policies and financial over-sightedness that provides organisation with effective performance
(Bernstein, Buse, & Bilimoria, 2016). Since stewardship theory is been regarded as
appropriate from both sociological and psychological perspective, it considerably contributes

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in bringing effectiveness within non-profit organisations. As discussed earlier, stewardship
theory has some elements of Kant’s deontology theory, the idea of stewardship approach
always remains in benefiting others than self only. This theory states that organisation board
or managers who act like stewards are not only concerned about encouraging financial
aspects for self as well as the firm, but also show willingness to perform for bringing overall
organisational effectiveness. With this theory, non-profiteering firms gains essential
motivation as the owners are directed to fulfil their job roles by reflecting excellence and
honour in their work manner thereby helping firms achieve effectiveness (Keay, 2017).
According to Jiang & Bowen (2011), non-profit organisations prime motives remains serving
people in best possible way without considering firm’s profits or any other personal interest.
Such competing motives can easily violate ethical norms within non-profit organisations or
create misunderstanding within board members. Hence, it is necessary that normative
approach is applied within non-profit firms and stewardship approach is the only way that can
satisfy the need of both normative as well as practical approach which can bring effectiveness
in the organisation.
Profit organization
Concerning profit organisations, stewardship theory determines and acknowledges
organisation’s profit and how facility and power can be used effectively by organisation
leader’s or the steward. Almost every profiteering firms follows typical hierarchical
organisational structure that reveals how the firm is been governed and controlled. The
stewardship approach helps such firms in identifying other critical factors which are directly
or indirectly related to firm’s success like economic system, government role, ownership of
stakeholders etc. While top level executives ensure every element is in position that
establishes a unified system within the firm, a steward will look that the organisation
functions are been performed after considering moral and ethical relationship with every

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stakeholder associated with the firm like shareholders, customers, employees, suppliers,
business partners etc. By doing such, organisation protect themselves from external and
internal issues alongside maximising shareholder’s profits rather than showing self-interest
only. Therefore, Ali & Abdelfettah (2016) opines that while organisations realise sustainable
development, stewards show motivation and self-satisfaction and thereby works in more
principled and ethical manner. Furthermore, stewardship approach considers employee’s
well-being first and enhances individual’s self-recognition through autonomy and power
provided to them that are built upon trust. This brings employees to a position in which they
start behaving autonomously for bringing organisational effectiveness through improved
performance (Ali & Abdelfettah, 2016).
Relationship of a leaders’ value and beliefs to effective governance in organisations
According to Madanchian, Husein, Noordin, & Taherdoost (2017), “effective
leadership is a key analyst of organisational success or failure while examining the factors
that lead to organizational success” (p. 1043). The author recognised that many researches
made upon organisational behaviour study emphasised upon leadership and that it can
balance both instrumental goals of the organisation and normative principles. Leaders who
considers good governance as their prime objective shows uncommon beliefs that defines
reality from moral and ethical perspectives alongside looking the world from perpetual
lenses. With such beliefs, leaders’ values get enlighten by their ability to understand how to
ethical leadership approach can create good governance that reflects organisational
effectiveness while supporting every operative function with enhanced commitment.
According to O’Connell (2016), to make organisation’s face success and bring good
governance into practice, it is significant that leader’s show active participation in creating a

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collaborative organisational environment that comprises ethics, values, positive behaviour
and uniform organisational culture in its management. As common arrangements are made
between organisation’ owners and its shareholders, leaders act as a mediator who instils good
governance frameworks and policies through his/her effective capabilities that in turn
contributes in bringing organisational effectiveness. Moreover, Michaelson, Pratt, Grant, &
Dunn (2014) also stated that research related to leadership effectiveness reveals that leader’s
ability, value and beliefs establishes a kind of trust within organisations that are more based
upon duty-based principle in which stakeholders act as followers of the leaders.
Conclusion
The above paper identified various governance theories from different theoretical
perspectives. The emergence of stakeholder’s theory, agency theory and resource dependency
theory address the effects and cause of variables like independent board of directors,
stakeholders and role of leaders. Additionally, this paper also identified ethical and biblical
perspectives in businesses that are closely associated with governance theories and can be
seen in combination with ethics theory like deontology, virtue ethics and hegemony theory.
Therefore, it can be said that governance theories are more based on social relationship than
process oriented. The above paper also evaluated stewardship theory contribution in profit
making and non-profit organisations and finds that in both the kinds, stewardship approach
contributes positively, however, the stewardship approach is undertaken differently in both
types of organisations. Leadership values and beliefs, on the other hand cannot be overlooked
while evaluating organisational effectiveness as they are amongst great contributors who
brings good governance within firms through their inner abilities and principled behaviour
that makes organisation’s achieve successes. Henceforth, it can be said that in today’s
business environment, every organisation must focus on their governance theories so that any

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sudden change in business trend driven by external or internal issues are critically manifested
by good governance and effective leadership.
References

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