Report on Corporate Governance Theories in Strategic Management

This report provides a comparative analysis of two prominent corporate governance theories: agency theory and stewardship theory. It begins with an introduction that defines governance theories and their significance in balancing stakeholder interests. The report then delves into a detailed comparison of agency and stewardship theories, highlighting their similarities and differences. Agency theory is presented as focusing on the potential for managers to act in self-interest, necessitating monitoring and control, while stewardship theory emphasizes the managers' role as responsible stewards who prioritize the interests of the principal and stakeholders. The report further explores the assumptions underlying each theory, including differing views on human behavior and organizational structures. Finally, the report concludes by asserting stewardship theory's popularity due to its emphasis on selflessness, empowerment, and wealth maximization for stakeholders. References to support the analysis are also provided.

CORPORATE GIOVERNANCE THEORIES 1
Strategic Management
Institutional Affiliation
Name
Date

CORPORATE GIOVERNANCE THEORIES 2
Introduction
Governance theories are theories which specify rules and processes of controlling and directing
companies to balance stakeholder’s interest. Examples of such theories are agency and
stewardship theories(Farrar,2008).This report compares and contrasts the two theories regarding
their characteristics and features and identifies the most popular among them
Similarities
The phenomenon in both theories is concerned with the relationships that exist between a
manager and a principal and the outcome of their relationship on organization performance. Both
theories are used in the business world to facilitate an understanding of the various relationships
existing in business as well as various business challenges by outlining the interests of
stakeholders including employees, shareholders, vendors, customers and members of the public
(Yusoff & Alhaji, 2012).
Differences
Agency theory is founded on the belief that managers are likely to make decisions based on self-
interest at the expense of shareholders if they are left unattended to. On the other hand, the main
assumption of stewardship theory is that an agent can act on behalf of the principal if they are
given authority and responsibility. It considers managers as good stewards with the capacity to
act in the best interest of the principle. Stewardship theory, therefore, focuses on facilitation and
empowerment unlike Agency theory which is centered on control and monitoring of the agent
(Monks & Minow, 2011).

CORPORATE GIOVERNANCE THEORIES 3
Agency theory is majorly concerned with finding solutions to problems that can come up in the
relationships between an agent and the principal as a result of goals that are not aligned as well
as differences in aversion to risk levels. Its central idea is that because a principal is too busy to
do a certain job, he /she solicit the services of an agent who he monitors and motivates at the
same time. Under this relationship, the owners of businesses are principals and managers are
Agents while the Board of Directors acts as the monitors on behalf of the principal. On the other
had stewardship is focused on the relationships between the success of an organization and
managers. Stewards are focused on maximizing and protecting the stakeholder's wealth. Unlike
Agency theory which is focused on satisfaction of the interests of the principal, Stewardship is
focused on satisfaction of the interests of most stakeholders in an organization by increasing the
wealth of an organization (Nicholson & Kiel, 2007).
There are two notions in Agency theory, the first being that organizations are made up of two
participants, shareholders and managers who have clear roles. It is also based on the notion that
humans are self-centered and unwilling to let go of their interests at the expense of other people’s
interest. In contrast, the behavior of a steward is collectivist and centered towards the
organization. It is based on the notion that stewards are selfless and willing to let go of their
interests at the expense of other organization stakeholders at all times to attain organizational
objectives (Farrar,2008).
Conclusion
In conclusion, I believe that stewardship is the most popularly held view because of its focus on
selflessness, empowerment, and facilitation, maximization and protection of stakeholders wealth
and its focus on collectivism.

CORPORATE GIOVERNANCE THEORIES 4
Reference List
Farrar, J. (2008). Corporate governance: Theories, principles and practice. Oxford University
Press.
Monks, R. A. G., & Minow, N. (2011). Corporate governance. Chichester: Wiley.
Nicholson, G. J., & Kiel, G. C. (2007). Can directors impact performance? A case‐based test of
three theories of corporate governance. Corporate Governance: An International Review,
15(4), 585-608.
Yusoff, W. F. W., & Alhaji, I. A. (2012). Insight of corporate governance theories. Journal of
Business and management, 1(1), 52-63.