Impact of Governance Theories on Business Performance

This report examines the significance of corporate governance in organizational performance, focusing on three key theories: Agency, Stewardship, and Resource Dependence. It explores how these theories influence decision-making and stakeholder interests, particularly in profit and non-profit organizations. The report highlights the impact of effective governance systems on internal culture and the crucial relationship between leadership values and beliefs in shaping effective governance programs. Stewardship theory's contributions to both for-profit and non-profit entities are discussed, along with the role of leadership in fostering ethical practices and organizational success. The influence of a leader's values on effective governance and team performance is also analyzed, emphasizing the importance of ethical leadership in driving overall organizational improvement.

Running head: BUSINESS MANAGEMENT
BUSINESS MANAGEMENT
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Executive summary
The aim of this report is to discuss key three theories of governance that have
contributed to organizational effectiveness in general, contributions of stewardship theory in
general to effective governance in non-profit and for-profit organizations and finally the
relationship of a leader’s values and beliefs to effective governance in organizations. This
report also discusses in detail the impact of these governance theories in order to improve the
organizational performance. It has been mentioned in this study that the effective governance
system has higher level of impact on developing the internal culture of the organization.
Through this process, the relationship between the values of leadership and beliefs to
influencing the effective governance programs in the organizational operations have been
mentioned.

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Table of Contents
Introduction................................................................................................................................3
Key theories of Governance.......................................................................................................3
Contributions of Stewardship Theory........................................................................................5
Effective governance..................................................................................................................7
Conclusion................................................................................................................................10
References................................................................................................................................11

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Introduction
With the increasing rate of organizational development, maintenance of corporate
governance has become very important in the organizational performance. It has been
identified that this plays an important role in the case of influencing the decision making
process as well as increasing the interest of the stakeholders in the case of influencing them in
investment. Here the study has tried to shed light in the three important theories of
governance. The impact of these governance theories in order to improve the organizational
performance has been pointed out. On the other hand, the influence of governance theories in
the case of improving the performance of both the profit and non-profit organizations have
been highlighted. It has been mentioned in this study that the effective governance system has
higher level of impact on developing the internal culture of the organization. Through this
process, the relationship between the values of leadership and beliefs to influencing the
effective governance programs in the organizational operations have been mentioned.
Key theories of Governance
Governance theories have higher level of impact on the organizational performance.
Therefore, assessment of governance theories is important for analysing its impacts on the
organizational performance. Here the study has mentioned about three important governance
theories such as Agency theory, Stewardship theory and Resource Dependence theory (Xiao,
2017). Agency theory is being considered as one of the important governance theory. In the
case of this governance theory, the principles of the organizations are being designed. Here
the executives are being hired by the managing team for developing the principles. These
executives are being called as the agent. It has been mentioned in this study that the goals and
objectives of the agent in the organization to develop proper principle in the organization so
that it will be able to develop its performance management practices (Majda, 2014,

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September). It has been also analysed in the study that if the principle will face the agency
loss regarding issues, in that case the return also decreases. Therefore this can be said that in
order to maximize the rate of profitability, proper development of agency theory in the
organization is required (Coule, 2015). This can be said that in order to suggest the financial
rewards, agency theory is very important. By following this theory the organizational
executive gets the chance to introduce different exiting executives that increases the profits to
the owners. Therefore this can be said that the main purpose of the executive theory is to
control, manage and monitor the performance of the organization (Zheng & Shao, 2015).
Depending on this process, the further development in the case of bringing the changes in the
decision making process of the company. The accountability operations are being managed
by the agency theory.
The second theory, which has been mentioned in the study is about the Stewardship
theory. In the theory it has been analysed that the executives or manager of the organization
are considered as the stewards of the employers. If the goals and objectives of the company is
being analysed, it will be identified that in the case achieving the goals and objectives of the
organization both of them give the same effort as their goal is same (Madison, Holt,
Kellermanns, & Ranft, 2016). Hence, this can be said that here all the executives and
employers works together to achieve the organizational objectives. After analysing the
stewardship theory this can be said that it is less dominant compared to the agency theory.
This theory is much effective in the case of supporting each other in the organisational
performance. Therefore, this can be said that in order to develop the healthy culture in the
workplace, this theory is very supportive. Another way, this can be said that by developing
the stewardship theory in the workplace, the organization gets the chance to develop the
effective relationship between the executives and board (Joslin & Müller, 2016). The healthy

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relationship between the executive and board play an important role in the case of managing
the training practices, mentoring as well as the decision making process of the company.
The third theory has been mentioned about the Resource dependence theory. It has
been argued that the theory is very effective in the case of providing the resources to
executives. It has been identified that by following this theory, the strong financial
development, human resource development practices and intangible supports are being done
to the agents (Biesenthal & Wilden, 2014). Therefore, this can be said that the organizational
as well as the performance of the executives are being influenced by following this theory.
The study has highlighted that by following the Resource dependence theory the executives
are being trained so that they will be able to do their job properly. On the other hand, this can
be said that by improving the performance of the executives, the overall [productivity of the
organization get improved (Bergeron, 2015, January). By following this theory, the board
members also get the chance to tap into the networks for grabbing the attention towards the
organizational resources. It has been recommended in this theory that ion the case of this
theory, the decisions regarding the organizational development are being taken by the board
of directors.
Contributions of Stewardship Theory
Stewardship theory of governance can be applicable for both profit as well as non-
profit organisations because regardless of its sizes or functionality, all these organisational
need to have proper stature which will monitor the performance of the whole firms. Based on
this monitoring, this structure will be planning for the future of the firm (Wu, Straub, &
Liang, 2015). There are various governance theories which the firms can easily refer as
models and apply them in the organisation in reaching the desired goals but the success
depends on the choosing and application of the right one of them. in this aspect the theory of
Stewardship is perfect for any kind of organisation both public as well as private.

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Unlike any other theory this particular theory is associated with the belief that the
managers of the firms are not always rational self-interested maximers. According to the
stewardship theory, the company executives are the most responsible people to guide the
organisation. It is defined through this theory that the executives of nay organisation can
protect the interests of the stakeholders and shareholders and make decisions on their behalf.
The sole objective of these executives is to help the organisation prosper by the means of
creating scopes for the shareholders to gain prosperity. The executives who embrace this
particular theory mainly place the chief executives at the centre of the organisation and the
board of directors comprising the inhouse members. The goals of these board directors are
perfectly aligned with the managers of the organisations where all of these people try to act in
support to serve the interest of the firm. According to this theory, the executives and
managers all are motivated to focus on the intangible rewards like the opportunities of
personal as well as professional growth as well as achievements (Viader & Espina, 2014).
According to this theory, the managers of the organisation motivate the employees in such a
way that the employees work selflessly in serving the interest of the ornamentation more
successfully (Turel & Bart, 2014). This method can be more applicable for the non-profit
organisations as the focus of this kind of organisation is more selfless. Moreover, this theory
captures the way through which the employees and mangers along with the executives can
satisfy the organisational as well as cultural preconditions. In this model of Stewardship, the
managers and the owners need to share the common agenda as well as work simultaneously.
The emphasis of this particular model is on the role of the board in the process of developing
strategies to gain success of meeting all the organisational goals rather than on the process of
monitoring the performance as well as the preponderance of the internal directors or the
executive director with the higher levels of access to the information is permitted.

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It is implicating in the stewardship theory that this is an understanding of the process
of the owners or more precisely the principals who remain prepared to take any type of risks
on behalf of the organisations as well as the method on how the managers will operate their
business then provide the return on the investments of the shareholders. Unlike the agency
theory, there is a high level of trust among the executives as well as the employees of the
organisation which is absent in the agency theory. The stewardship theory of governance
mainly focuses on gaining the clear objective of the shareholder satisfaction. Through this
theory the originations get one voice as the organisations have a single leader in them that
creates one singular channel for communicating business to the stakeholders and the
shareholders. Through this model the companies are being able to avoid the confusion
regarding the ownership and importance of the executives. This mitigates the problem as to
who actually is in the charge as the companies need to weather storm. Stewardship
governance of the organisations for both profit and non-profit require that the Chief
Executives be dependable on the organisations of the organisations. This will make the
people of the organisation keen to put the personal gains aside for the betterment of the
organization (Heide, Kumar, & Wathne, 2014). Therefore, this particular theory is the most
effective for the internal as well as extremal growth of the organisations and gain popularity
among all the stakeholders associate with the employees.
Effective governance
The effective governance of the organization is heavily dependent on the beliefs and
the values that are maintained by the leader of the organization. The values of the leader of
the organization might be held responsible for the various matters that are responsible for the
effective governance of the organizations that have been operating in the given market
territory (Giltinane, 2013). The ethical leadership on the part of the leader might help in the
matters that deal with the overall performance of the concerned organization. The ethical

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leadership of the concerned leader might include the matters that pertain to the responsive
integrity of the of the various members of the workforce of the organization which in turn
helps the concerned organization to flourish and thereby depict an overall improvement in the
operations of the concerned government.
The effective performance of the team of employees within the organization is known
to have been dependent on the qualities depicted by the leader of the concerned team or the
organization as a whole. The leader is generally heard to be responsible for the depiction of
the various leadership skills that are responsible for the effective governance of the various
members of the team of employees who have been serving the organization under the
guidance and the motivation of provided by the concerned leaders (Chin, Hambrick, &
Treviño, 2013). The effective leader must display the qualities of the effective leadership in
order to help in the effective improvement in the governance of the workforce of the
concerned organization. The leaders should depict the competence in the matters that pertain
to the concerned business organization. The leader must be competent enough to deal with
the various employees who have been serving the organization under the concerned person.
The competence of the leader might be considered to be one of the key characteristics that
must be depicted by the concerned leader (Carter & Greer, 2013). The competence on the
part of the leader in the matters that pertain to the handling of the numerous crises and
challenges that might arise tends to put forth the role of the various leaders in the matters that
pertain to the governance and the maintenance of the various members of the workforce of
the organizations. The leaders of an organization are expected to display both the leadership
and the professional competencies. The professional competency of the concerned leader
refers to the expertise of the leader in terms of the professional aspects of the concerned job.
The leadership competencies of the leader however refer to the understanding of the leaders
in the matters that pertain to the understanding of the leader in matters that pertain to the

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responsibilities of the leader and the leadership approaches that might need to be
implemented by the leader in the various situations that might arise within the organization
(Bamford, Wong, & Laschinger, 2013). The leader must also depict the qualities that relate to
the accountability of the concerned leader in the matters that pertain to the undertaking of the
various decisions on the part of the leaders as well as the concerned management body of the
organization. The concerned leader must also depict the qualities that pertain to the integrity
and the openness on the part of the leader which helps in the circulation of the various ideas
that might be put forth by the various members of the workforce.
In order to maintain a good governance within the organization, the leaders might be
advised to demonstrate the practices of the qualities that are needed in order to deal with the
workforce of the organization in an effective manner. The leader should be able to depict the
competency in the matters that are related to the efficiency and the effectiveness of the
discharge of the duties and the responsibilities of the concerned leader (Yang, 2014). The
leader might also depict the qualities of accountability in order to deal with the various
matters that might arise within the concerned organization. The accountability of the
concerned authority in terms of the various matters that might have been affecting the
performance of the concerned members of the workforce in the given organization. The
accountability of the concerned management might be dependent on the various matters that
deal with the implementation of the various rules and regulations on both the internal and the
external matters of the concerned organization. the good governance of the organization
might also depend on the openness of the leader in the matters that deal with the novel ideas
that are shared by the workforce members of the organization (Sendjaya, Pekerti, Härtel, &
Hirst, 2016). This might however include the matters that deal with the enclosing of the
confidential information by the leader. The leader should not disclose confidential
information under any circumstances.

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Conclusion
In the above study, it has been identified that governance theorises have higher level
of contribution in improving the performance of the organization. After analysing all the
three theories, this can be said that stewardship theory is more effective in the case of
bringing the improvement in the organizational productivity compared to the other two
theories. However, following this theory the organizational performance as well as the
relationship between the employers and employees gets improved. This is also very effective
in the case of developing the internal culture of the organization. In this study, it has also
been analysed in this study that development of proper leadership style is very important for
implementing the governance practices in the organization.

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