May 28, 2018 stewardship theory meaning stewardship theory defin. Tennessee research and creative exchange doctoral dissertations. Aug 19, 2018 the key feature of agency theory is separation of ownership and control. Stewardship theory, stakeholder theory and convergence by stephen l. Agency theory argues that shareholder interests require protection by separation of incumbency of ra. Agency theory and stakeholder theory commerce essay. The paper attempts to position the stakeholder theory and resource dependency theory along the theoretical continuum from agency to stewardship theory and. Agency theory and stewardship theory integrated, expanded, and bounded by context. Larsons m3a1 stewardship theory, stakeholder theory, and. Stewardship theory was introduced by donaldson and davis 1989 as a normative alternative to the agency theory.
The theory of the firm provides a useful conceptual basis upon which to build on. Studies abound investigating whether agency or stewardship theory is more applicable within family firms. Agency theory and stewardship theory are not mutually exclusive but create a link between agency and stewardship relationships. To sum up, two popular theories used by corporate governance, agency theory and stakeholder theory are introduced and compared in this paper. The ultimate theories in corporate governance started with the agency theory, extended into stewardship theory and stakeholder theory and evolved to resource dependency theory, political theory, legitimacy theory and social contract theory. Agency theory concerns the difficulties in motivating management i. Pdf comparative analysis of corporate governance theory. The executive manager, under stewardship theory, far from being an opportunistic shirker, essentially wants to do a good job, to. Stewardship theory is a framework which argues that people are intrinsically motivated to work for others or for organizations to accomplish the tasks and responsibilities with which they have been entrusted. Ghazinoori, lecture 4, advanced theory in organization management 1.
We use these theories to examine possible differences in ceo behaviors. Agency theory argues that shareholder interests require protection by separation of incumbency of roles of board chair and ceo. A substantial amount of research exists in corporate governance using the principalagent model. The most common are agency theories, stewardship theories, resourcedependence theories, and stakeholder theories. Stewardship t heo ry stewardship theory davis ct al. Agency theory vs stewardship theory in the accounting perspective eko raharjo abstract the agency theory tries to compose formal link between principal and agent or any intended parties within budget composition process. Pdf is agency theory compatible with stewardship theory. Thus, stewardship theory is not centralized on selfmotivation through own financial gain, but the assumption of two roles as the chairman, at the same time as the manager of the corporation will produce superior results and maximized returns to the shareholders than separation of the roles of the chair and ceo as exemplified by the agency theory. Jensen and mecklings 1972 innovation was to insist that organisations should be seen as no more than a set of implicit and explicit contracts with associated rights. Stewardship theory meaning stewardship theory defin. Apr 05, 2017 stewardship theory, in contrast, adopts a covenantal approach, where companies have a moral commitment to protect and respect wider society and the environment, separate from their fiduciary obligations. Results of an empirical test fail to support agency theory and provide some support for stewardship theory. Agency theory begins from selfinterested behavior and rests on dealing with the cost inherent in. In summary, both agency theory and stewardship theory are corporate governance principals in the modern business world.
This theory is an alternative view of agency theory, in which managers are assumed to act in their own. Agency theory, despite being the most prominent corporate governance theory, it still isnt the best one. The key feature of agency theory is separation of ownership and control. Agency theory begins from selfinterested behavior and rests on dealing with costs inherent in separating ownership from control. Agency theory versus stewardship theory accounting essay. Agency theory, the second section further explores the stewardship theory as the organizational counterweight to economic theories of management. Based on these differences, we argue for the development of an agentsteward measurement scale, which will help researchers classify chief executive officers ceos along an agentsteward. Governance theories, agency theories, stewardship theories. They are applied in different circumstances, which will be conditioned by the stage in which the company is. Stakeholder theory is a close relative to stewardship. Some scholars have suggested that notions of stewardship be incorporated into stakeholder theory to bolster its ethical basis. The executive manager, under this theory, far from being an opportunistic shirker, essentially wants to do a good job, to be a good steward of the corporate assets. Stewardship theory argues shareholder interests are maximised by shared incumbency of these ra. Agency theory and stewardship theory are not mutually exclusive but create a.
However, the key difference between agency theory and stewardship theory is that agency theory is an economic model, whereas the stewardship theory is a psychological model. Agency theory, stewardship theory and residual right. The executive manager, under stewardship theory, far from being an opportunistic shirker, essentially wants to do a good job, to be a good steward of the corporate assets. The original purpose and expectation of these theories is to develop and enhance the level to corporate governance.
Our findings are that venture capital firms use contracting to prevent the problems that can occur with agency theory and with the help of contracting a principal. Agency theory concentrates primarily on the association between the principal and the agents in corporations, having a formal and contractual nature of relationship however with the presumed goal indifference and incongruence of. Agency theory often comes into play when weighing shortterm versus longterm gains. Both theories predict enhanced firm performance, but. Recent thinking about top management has been influenced by alternative models of man. The data from scandinavian bank boards and risk measures shows that some of the agency theory prescriptions may lead to increased risktaking.
Most theories of corporate governance use personal self interest as a starting point. Regardless of the size of a firm or if it is publicly or privately held, it needs a structure in place to monitor performance and plan for the future. Distinguish between agency theory, stakeholder theory, and stewardship theory with respect to controlling the actions of managers. An empirical investigation of structure, behavior, and performance within family firms a dissertation presented for the. By referring to agency theory, rules and regulations can be constructed around this expected. Agency theory and stewardship theory integrated, expanded. Agency theory is simply one way used to describe how people may behave in a corporate environment. Stewardship theory of corporate governance and value. In these ways, we hope to contribute to the growing body of stewardship research. In an agency theory, the power is institutionally directed while in the stewardship, it is based on personal ability and power to run the particular organization.
Stewardship theory of corporate governance your business. Does agency theory or stewardship theory apply to the. Stewardship theory of corporate governance and value system. The variety of approachesperspectives on stewardship, as illustrated from the analysis undertaken in this article, provides an opportunity for deeper theorybased understanding of social and. Agency theory is a useful framework for designing governance and controls in organisations. Agency theory and stewardship theory are compatible, and have a complementary vision. Pdf agency theory and stewardship theory are compatible, and have a complementary vision. Stewardship theory argues shareholder interests are maximised by shared incumbency of these roles. Difference between agency theory and stewardship theory. This theory arises as an important counterweight to agency theory. It does not consider the other stakeholders such as creditors, suppliers, employees, government, etc.
Contents background of agency theory definitions assumptions reasons for agency problem example of application audit committee vs agency theory recent example of theory 3. The agency theory of corporate governance states that corporate executives and board members are legally and morally obligated to act in the best interests of the parties they represent, usually shareholders. Agency theory assumes that managers will act in their own selfinterest at the expense of shareholders. The purpose of this paper is to 1 explore the different facets of the theoretical concept of stewardship by giving a carefully selected overview of the relevant research field and also contrast that theory with the more prominent agency theory, 2. By articulating stewardship theory in contrast with agency theory, the boundaries within which each of these two theories applies can be charted. The agency theory looks to outline the interests of a principal and an agent, which can include an individual and a financial planner. Agency theory concentrates primarily on the association between the principal and the agents in corporations, having a formal and contractual nature of relationship however with the presumed goal indifference and incongruence of interest sharma, 1997. Stewardship theory on the other hand suggests that managers will act as responsible. In agency theory extrinsic rewards such as tangible commodities having measureable value are of prime importance whereas in stewardship theory the focus is on intrinsic rewards that are not easily quantifiable such as affiliation, growth, and. The distinctiveness of agency theory and stewardship theory jstor. A recent paper in the journal for business ethics argues that the key difference is that stewardship essentially takes a normative view of social relations and environmental care compared to the more instrumental perspective adopted by stakeholder theory. The influence of agency theory within corporate governance. Aug 22, 2012 in an agency theory, the power is institutionally directed while in the stewardship, it is based on personal ability and power to run the particular organization. Rewards and punishments can be used to correct the priorities of agents.
Australian graduate school of management, university of new south wales, po box 1, kensington nsw 2033. The research herein extends this research by using stewardship theory to compliment the dominant agency model. The stakeholder theory suggests there are differences between. The theory prescribes that people or employees are held accountable in their tasks and responsibilities. Pdf agency theory, stewardship theory and residual right.
The purpose of this study is examine how agency theory and stewardship theory lead to different firmlevel outcomes on an array of different outcomes. Alternatively, sociological and psychological approaches to governance such as stewardship. The concept offers a solid introduction to the topic by evaluating its strengths and weaknesses and uses case study evidence to demonstrate how the theory has been applied in. Pdf agency vs stewardship theory syed qaim ali shah. An organization can use one of several corporate governance theories as a model, and its success is based on selecting the.
Stewardship theory of corporate governance bizfluent. Stewardship theory is a framework which argues that people are intrinsically motivated to work for others or for organizations to accomplish the tasks and. Agency theory and stewardship theory integrated, expanded, and. The difference between agency theory and stewardship. Agency theories arise from the distinction between the owners shareholders of a company or an organization designated as the principals and the executives hired to manage the organization called the agent. The third section explains why stewardship theory suffers from being static, and underpins the importance of introducing learning into the relationship dynamics between principals and agents. Mar 28, 2019 the agency theory of corporate governance states that corporate executives and board members are legally and morally obligated to act in the best interests of the parties they represent, usually shareholders. Aug 05, 2019 the agency theory looks to outline the interests of a principal and an agent, which can include an individual and a financial planner. Jan, 2019 most theories of corporate governance use personal self interest as a starting point.
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