Stewardship Theory in Corporate Governance: A Comprehensive Analysis

Desklib provides solved assignments and past papers to help students succeed.

Stewardship paper
1

Table of Contents
Introduction................................................................................................................................3
Discussion of theories................................................................................................................4
Stewardship theory.....................................................................................................................5
Leader’s values and beliefs........................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8
2

Introduction
Corporate governance is the most significant element of management in this era. As the
organizations are enhancing the boundaries of their business, so it is essential to incorporate
the elements of corporate governance for improving the quality of the decision-making
process. The concerned assignment is reflecting the requirement of corporate governance in
profit and non-profit organization. The assignment likewise helps in highlighting a number of
theories in the respective direction. The study of the theories will help in enhancing the
quality of leadership and management in the organization. With the help of the assignment,
the concept and significances of Stewardship theory are identified in the most significant
manner. The respective assignments likewise incorporated with the values and beliefs of a
leader.
With the study of the assignment, the users will be capable of understanding different types
of corporate governance theories and their role in shaping the management pattern of the
organization.
3

Discussion of theories
Corporate governance is basically an approach or practice that assists the organization in the
process of decision making and controlling. With effective corporate governance strategies,
the organizations are able to enhance the scope of leadership and management in the
organization (Yusoff & Alhaji, 2012). They will be able to lead and control the subordinates
in the most effective and significant manner. With globalization, the corporate has reached all
the places in the world. The governance of corporate not only influences the objectives of the
business, but they likewise have an impact on the economic, social and political structure of
the country. Hence it is essential to adopt effective corporate strategies for the development
of the company and the society on a micro level. Corporate governance is basically a process
of planning and decisions making that are promoted towards the success of the organization.
A number of corporate governance theories that can help in the process of decision making
and leadership are narrated underneath:
1. Agency theory
It is a theory that is related to the principle and agent relationship. In other words, it
can be said that the respective theory help in identifying the relationship of a principal
and agent in which principle is the shareholder of the firm and agent is the manager.
As per this theory, the principles try to hire the agents for performing the tasks or
activities in the organization. They try to delegate their part of their duties to the
agents of the firm in order to enhance the productivity of the organization with the
utilisation of resources in an optimum manner (Chelniciuc, 2014). The agents are
bound to work for the growth of the organization as they are assigned to fulfil the
goals of the organization. The agents are expected to take all the decision for the
success and growth of the organization. Along with this, the respective theory
likewise states that it is not essential for the agent to always take a decision for the
welfare of the principal or the stakeholders. They can sometimes neglect the interest
of the principles for the sake of the organization. On the basis of this, it can be
ascertained that the primary goal of the agent is to fulfil the requirements of the
organization and to accomplish all organizational objectives. The agents are
authorised to direct, lead and control the subordinates. They are even authorised to
punish or appraise an employee in the interest of the organization (Chelniciuc, 2014).
4

(Figure 1: What does the agency theory refer to)
(Source: Chelniciuc, 2014)
2. Stakeholders theory
The respective theory is completely based on the interest of the shareholders. It shows
the accountability or responsibility of the managers towards the stakeholders of the
organization. As per this theory, it is ascertained that the managers are liable to the
stakeholders and it is their duty to form a chain that can help them to serve all the
customers, suppliers, distributors, investors and other stakeholders of the
organization. With respect to this theory, all the major decisions of the firm are taken
by respecting the will and concern of the major stakeholders. The managers must not
disobey the concerns of the stakeholders and never work against the value and the
interest of the stakeholders. With the help of this theory, the organizations will be able
to satisfy their stakeholders and will likewise be able to enhance the proficiency.
5

(Figure 2: Stakeholders Theory)
(Source: By Author)
3. Resource dependency theory
This theory centralises the use of resources in the organization. As per this theory, the
directors of the firm are responsible for supervising and securing the resources of the
organization. Resources are an integral part of the firm. They are required for the
accomplishment of every activity in the organization (Yusoff & Alhaji, 2012). The
theory states that the directors of the firm are responsible for managing and securing
the resources of the organization form the external and internal activities. This theory
plays a significant role in deciding the performance level of the organization and of
the employees. As per this theory, the directors play a number of roles in the
organization such as business analytics, experts and marketers etc. With the
application of this theory in the firm, the organizations will be able to respond to the
changes in the market and will likewise be able to enhance the level of adaptability
and flexibility. This theory will likewise help the managers in making the effective
use of the resources.
All of the above-discussed theories will prove fruitful in both Profit and Non-Profit
organizations. With the help of these theories, the organization will be able to formulate
effective decisions that will ultimately benefit the company in fulfilling its objectives (Fanta,
Kemal & Waka, 2013).
6
Organization/managerCustomersInvestorsSuppliersDistributorsGovernemnetEmployees

Stewardship theory
Leadership and decision making are two important elements that help in promoting the
growth of the organization. With the help of these elements, the organization are able to
enhance the level of controlling and supervision that results in effective quality. With the help
of these elements, the managers of the firm are able to fulfil the clear aims or goals of the
organization (Van Puyvelde et al., 2012).
Stewardship theory is related to the efforts of the managers or stakeholders in protecting the
right of the major stakeholders. This theory was initiated by Donaldson and Davis in 1993.
As per this theory, the stewards or the managers of the firm are working for the interest of the
shareholders and are liable to protect the profit and rights of the shareholders. Along with
this, the key objectives of the stewards is the growth and success of the organization. They
feel motivated and inspired by they are able to accomplish the actual goals of the
organization. The managers are also responsible for guiding and directing the employees to
work as per the objectives of the organization. The actions of the employees are diverted in
the direction of the success of the organization that ultimately helps in maximizing the
interest of the stakeholders (Van Puyvelde et al., 2012).
The stakeholder empowers and trusts the steward that they will help in maximizing the
interest of the stakeholders. The stewards are basically hired by the shareholders for fulfilling
their aspirations and to improve the profits and sales of the organization. The stewards are
likewise responsible for protecting the wealth of the stakeholders and for providing them
security regarding their reserves (Welsh, et al., 2013). By fulfilling all the aspirations of the
stakeholders, the utility or value of steward is improved in the organization. Steward is not
related to the individuals of the organization, but they are the top management of the firm that
is responsible for the growth of the organization (Van Puyvelde et al., 2012).
The concept of agency theory and steward theory seems similar, but it is distinctive as agency
theory is applicable to the employee or lower level of managers of the organization, but the
steward theory is applicable to the top level managers or directors of the organization. In
steward theory, the managers try to direct the actions of the employee towards the goal of the
organization that will help in motivating and inspiring the stewards. Stewardship theory is
basically an alternative to the agency theory and helps in eliminating all the failures of the
respective theory (Chelniciuc, 2014).
7

Stewardship theory holds great importance in corporate governance. With the help of this
theory, the top level management is able to take all the major decision of the organization that
can help in quick decision making and promoting the goals of the firm to the best. With the
application of this theory, all the activities will be executed in a planned and effective
manner.
With the help of this theory, the management can be taken from the control of the owners.
The managers are able to function the process of the organization without the intervention of
the owners of the firm, i.e., the stakeholders. As per this theory, all the power lies in the hand
of the top level management that helps in the process of quick decision making. The top-level
managers are experienced and are completely aware of the goals and objectives of the
organization. The decision taken by them will always benefit the organization and the
ultimate owners (Fanta, Kemal & Waka, 2013).
With the impact of this theory, the managers are able to enhance the working environment in
the organization. They are able to reduce the level of chaos and conflicts from the firm that
will result in the improvement of efficiency and quality. As the top level managers or the
BOD have all the rights to take the decision, so the decision making a policy of the firm can
be improved. The BOD tries to motivate the employees by the mode of bonus and incentives.
By motivating the employees, the board directors are able to direct the actions of the
employee for the success of the organization (Chelniciuc, 2014).
With the study of the below figure, it can be evaluated that with the assistance of stewardship
theory harmony and peace can be established in the organization. The steward will try to
satisfy both the employees and the stakeholders. The decisions of the steward are always
directed in the direction of the success of the organization. They try to motivate the
employees by understanding their requirements and by incentivising them. Motivated
employees tend to work with more enthusiasm that will ultimately benefit the owners or the
stakeholders.
With the help of the above information and the figure, it can be commented that stewardship
theory contributes to the development of the organization. With the help of this theory, the
managers are able to enhance the scope of corporate governance. This theory is applicable in
both profit and non- profit organization that will help in shaping the management of the firm
in the purposeful direction (Welsh, et al., 2013).
8

(Figure 3: Stewardship Theory)
(Source: By Author)
9
BoardofDirectors(Steward)Stakeholders(Owner)Managersandemployees

Leader’s values and beliefs
Leaders are the most crucial element of the organization. Without their cooperation and
support, the organization is not able to achieve its goals. The leaders are responsible for
directing, guiding and leading the subordinates of the organization. Without the directions of
a sound leader, the organization will be a mess of man and machine. After the study of the
above theories, it can be said that leaders are able to manage the resources of the organization
in the most organised manner, they are likewise able to fulfil the aspirations of the
stakeholders in the most productive manner (Lichtenstein, 2012).
In an organization, the leaders hold a great value. They are responsible for effective
governance in the organization. It is not possible for the organization to implement the
theories of corporate governance without the involvement of leaders in it. With the support of
the leaders, the organizations will be able to respond to changes and fluctuations of the
environment (Leadership Core Values & Beliefs are Keys to Greatness. 2019). Some of the
elements related to the value and beliefs of the leaders that will help in corporate governance
are as follows:
 The vision of the leaders: Vision of a leader help in the promotion of the
organization. A leader with a vision to accomplish the goals of the organization will
help in directing the efforts of employees toward success and vice versa (Lichtenstein,
2012).
 Trust: Trust is the most crucial element, it is essential for the leaders, stakeholders
and the employee to have trust in each other that can help in the accomplishment of
the organizational objectives (Leadership Core Values & Beliefs are Keys to
Greatness. 2019).
 Responsibility: It is the responsibility of the leader to guide and motivate the actions
of the subordinates for the development of the organization. If leaders take their
responsibility seriously, than they are able to manage the functions of the firm in the
most effective manner (Lichtenstein, 2012).
 Communication: It is the most preferred and important element of the organization.
Communication is required at every step in the organization. With the help of
effective communication, the leaders are able to guide the staff properly. Alongside
the communication channels; likewise, assist in understanding the requirements of the
10

major stakeholders of the firm (Leadership Core Values & Beliefs are Keys to
Greatness. 2019). It is a well-known concept that communication helps in enhancing
the efficiency and quality of the organization. It is essential for a leader to be a good
listen along with an effective spokesperson. Both of these qualities will assist them in
enhancing the level of governance in the organization (Fanta, Kemal & Waka, 2013).
11

Conclusion
Corporate governance is basically a set of rules and obligations that assist the firm in
enhancing the efficiency of decision making. The respective assignment is based on the
concept of corporate governance and is conjecturing the significance of the respective term in
this era of globalization. The assignment helps in concluding a number of corporate
governance theories that will help in managing the activities of the organization. With the
implementation of these theories, the managers of the firm will be able to manage the
resources effectively and will also be able to enhance the productivity of the firm. These
theories will assist the managers in fulfilling the demand or aspirations of the stakeholders.
The assignment also helps in conjecturing the value of stewardship theory in profit and non-
profit organization. The information provided in the assignment will help the organizations in
improving the quality of leadership and enhancing the level of decision making. With the
effective knowledge of the theories, the leaders or the managers of the firm will be able to
fulfil the goals of the organization.
12