Stewardship and Agency Theory: Impact on Organizational Performance

This essay delves into the intricacies of stewardship and agency theory, comparing and contrasting their core principles. It highlights the similarities in their focus on the relationship between owners and executives, both aimed at enhancing organizational performance and ensuring accountability. The essay elucidates the differences, noting that stewardship theory emphasizes intrinsic motivation and pro-organizational behavior, while agency theory leans on extrinsic motivation and limiting opportunistic behavior. Furthermore, the essay explores strategies for shifting the mindset from an agent to a steward, emphasizing the importance of organizational values and leadership skills. Finally, it discusses the positive impact of the stewardship theory on organizations, including increased profitability, improved employee morale, and alignment with the company's mission. The essay concludes by reiterating the significance of both theories in enhancing organizational performance and fostering responsible leadership.

Running head: STEWARDSHIP AND AGENCY THEORY
Stewardship and Agency Theory
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1STEWARDSHIP AND AGENCY THEORY
Introduction
Stewardship theory refers to the theory that the managers in the event of being left on
their own would act as the responsible stewards for the assets that they are controlling. It
talks about the fact that in the event of given a choice in between the self-serving behaviour
and the pro-organizational behaviour the stewards would place the higher value on the co-
operation than the defection (Davis, Schoorman & Donaldson, 1997). Agency theory refers
to the management theory that helps in explaining the relationship within the framework of
the business organizations. It helps in describing relationship in between the principals and
the delegation of the control. This essay discusses about the similarities existing in between
the stewardship and the agency theory. This essay elucidates on the difference in between
stewardship and agency theory and how a person can change mindset from the agent to the
steward. This essay talks about the effect of the implementation of the stewardship theory on
an organization.
Similarity between stewardship and agency theory
The stewardship and the agency theory lays emphasis on relationship existing in
between two parties- owner along with the executive. The theories are brought into effect in a
company so that it can improve the performance of an organization. It can be said that both
the theories helps in ensuring the accountability in the event of the task being delegated from
the principal to the executive (Keay, 2017). The theories talks about the element of the
motivation that can help in providing the encouragement to the workers. The similarity can
be perceived in between the two theories as they help in explaining the business relationships
and understanding the implications of the business relationships. The theories proves to be
valuable in understanding the challenges that a business have to face in the present

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environment. It helps in outlining interests of the shareholders, employees along with the
customers.
Differences between stewardship and agency theory
The stewardship theory helps in indicating relationship in between owner and agent
and agency theory is indicative of relationship existing between owner and that of the agent.
The stewardship theory has been framed on the basis of the psychology along with the
sociology and on the other hand agency theory is based on the management along with the
economic principles (Zhang et al., 2018). The stewardship theory establishes the fact that
improved performance is on account of principal providing encouragement to the governance
structure that can motivate the pro-organizational behaviour of steward. The agency theory in
contrast lays hold to the claim that the performance can be improved when principal
implements governance structure that limits opportunistic behaviour of agent (Bosse &
Phillips, 2016).
The stewardship theory have been found to be driven by the aspect of the intrinsic
motivation and the agency theory is driven by the aspect of the extrinsic motivation (Lok,
Hwang & Höllerer, 2016). On the basis of the stewardship theory, managers can identify to a
great extent with the organization and they work very hard so that they can sort out the
problems of the employees of company. In the event of the agency theory, managers have the
low level of the identification with a company.
Strategy for moving mindset from agent to steward
There are certain strategies that can be adopted that can help an individual in changing
from mindset of the agent to the steward. The mindset of the individuals can be changed in
the organization in the event of the managers abiding by the set of the organizational values
that can increase the value of the employees before the management. The environment should

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be established in a company in which the individuals can improve the sense of the well-being
that can act as a positive force for a company (Bendickson et al., 2016). The good leaders
should be skilled in tools along with the techniques of the management that can help him in
emerging as a steward leader in front of the other people in an organization. The leader
should have the capability of learning the new things and be endowed with the element of the
understanding that can help him in understanding the problems of the subordinates within the
framework of an organization. The leader should have the foresight that can help him in
managing the process along with the operations in a company. It can help him in responding
to the issues taking place in the organization that can build the unity among the workforce.
The steward leaders should have the foresight that can help him in the area of anticipating the
challenges and the threats before the path of an organization (Panda & Leepsa, 2017). The
leader should act in a responsible manner that can be helpful in changing the mindset from
that of the agent to the steward.
Effect of stewardship theory on organization
A company that is espousing by the values of the stewardship theory can draw the
clients that can increase the profitability of a company. It can help in improving the morale of
the workers that can improve the overall performance of a company. It can help a company in
staying true to the mission that can help in attracting the customers. It helps in focussing on
collective good of constituents and it makes the managers in working on behalf of owners. It
helps in avoiding any kind of the misalignment in between interests of managers and the
owners as the steward managers have the opinion that what would prove to be best for the
organization would also be good for the constituents of the organization. It can help in the
promotion of the value creation that can have positive results for the performance of a
company.

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Conclusion
The stewardship and the agency theories augments performance of organization and
they take care of the aspect of the accountability in relation to delegation of tasks in a
company. Stewardship theory is driven by the intrinsic motivation and agency theory have
been found to be driven by element of extrinsic motivation. An organization believing in the
stewardship theory can be instrumental in drawing clients which increases profit of company.
Leaders should have the foresight that can help him in facing the challenges in a company.

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References
Bendickson, J., Muldoon, J., Liguori, E., & Davis, P. E. (2016). Agency theory: the times,
they are a-changin’. Management Decision, 54(1), 174-193.
Bosse, D. A., & Phillips, R. A. (2016). Agency theory and bounded self-interest. Academy of
Management Review, 41(2), 276-297.
Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of
management. Academy of Management review, 22(1), 20-47.
Keay, A. (2017). Stewardship theory: is board accountability necessary?. International
Journal of Law and Management.
Lok, J., Hwang, H., & Höllerer, M. A. (2016). “Managers to the Rescue!”: Evaluating the
Legacy of Stewardship Theory from an Institutional Perspective. In Advancing
organizational theory in a complex world (pp. 134-149). Routledge.
Panda, B., & Leepsa, N. M. (2017). Agency theory: Review of theory and evidence on
problems and perspectives. Indian Journal of Corporate Governance, 10(1), 74-95.
Zhang, F., Wei, L., Yang, J., & Zhu, L. (2018). Roles of relationships between large
shareholders and managers in radical innovation: A stewardship theory
perspective. Journal of Product Innovation Management, 35(1), 88-105.