BUS561 Financial Stewardship : Theories of Governance

1.1 Agency theory

The corporate relationship between the agents (company directors and higher authority associates) and the principles (company stakeholders) can be recognized with the help of agency theory. As per this specific theory the agents are hired based on principals of the organizations to perform the work. In order to fulfill the requirements of the stakeholders (managers, agents etc) and direct the business towards success this theory is applicable. According to this theory the agents are responsible to take the organizational decisions (Duncan & Whittington, 2015). Though, it is contrary as in certain cases the agents fail to take appropriate sustainable decisions. The agency theory can successful build segment wall between ownership and control. If it is found that the people and employees are failing to fulfill their roles and responsibilities then potential punishment is also allowed and vise versa. Collectively the two main elements of agency theory are principles and agent and the relationship between these attributes are established via performance and hire-delegate.

1.2 Stewardship theory

As per the Stewardship theory it can protect and maximizes the wealth of stakeholders with their performance. It makes profit for the organization and the actions are all taken by the organizational executives and higher authorities anonymously (Top, Öge, Atan, & Gümü?, 2015). Whenever the company successes are attained the stewards feel satisfied as well as motivated at the same time. The position of both the executive and the employees are stressed for acting much autonomously to provide maximum return to the organizations.

1.3 Stakeholder theory

The stakeholder theory includes management accountability to a broad range of stakeholders. the organizational stakeholders shares a network inside  that serves relationship among the suppliers, employees and business partners. This specific theory is again focused over the managerial decision making approaches and interest of the stakeholders. Above theses it is defined that associate stakeholders need to serve their assigned job roles within the estimated time period.

1.4 Resource dependency theory 

The resource dependency theory is focused on the responsibilities and roles of associated members of board of directors. The resources to be used in the organization are secured from the external sources and the responsibility of securing all responsible resources are taken by the board of directors. The organizational functionalities are enhanced by the usability of these resources (Glinkowska & Kaczmarek, 2015). Not only this but also for long term sustainability and performance of the firms the resource dependency theory is needed to be applied by both the profit and non-profit organizations. The directors are responsible to bring the resources to their firms in terms of information, skills, knowledge etc. The directors of the organizations are always categorized into four sections such as business experts, support specialists, insiders and community influential.

 1.5 Transaction cost theory 

In order to create value or add on values to increase the profit margin of the organization sometimes it is found that the companies are operating many projects at a time. In such situation the transaction cost theory needs to be used b the organization (Waldkirch & Nordqvist, 2017). If many projects are running in an organization then cost associated to the projects are needed to be measured accurately. In other words the cost related to each single project with the external parties is known as transaction cost. Again if utilization of market cost ranges as high then the transaction itself will be undertake by the company.

1.6 Political theory

 This theory deals with voting support from the stakeholders to organizational development or by purchasing the voting power. The corporate power allocations are highlighted with the application of this theory o the profit and non-profit organizations. Through this theory the profit and privilege from the government theory will also be determined in a much easier way.   

2. Contribution of stewardship theory 

The study outline of Stewardship theory is established upon a rich through1 of body much of which content helps to address the business underlying questions of the reasons for which a firm exists. In order to explicit the roles and responsibilities associated to stakeholders all the discussion terms are required to be analyzed accurately (Neubaum, Thomas, Dibrell & Craig, 2017). Whenever benefits of any organization drives the business some companies can consider themselves as a part of something bigger that time. Stewardship theory deals with organizational ownership but that clearly never owns the organization itself. It shows the members the direction through which the operations actually conducted. Therefore, it can be said that, in order to meet the social standards of the organizations not each time the profit making is mandatory (Bernstein, Buse & Bilimoria, 2016). Statistically it can be said that non-significant effects can be a symptoms for the defined dependent variable. Though, for testing the relationship of Stewardship theory the performance of the firms must be defined accurately. In the future study of the corporate governance the Stewardship theory application is very much profitable. It can be suggested that Stewardship theory can be conducted in both the profit and non-profit organizations. It gives the employees and organizational associates a better monitoring technique and better alignment approach at the same time. How a business can impact the society and wealth of the organization itself are measured correctly with the Stewardship theory.  The key points associated to the Stewardship theory are as follows:

• Stewardship theory gives a professional approach to the stakeholders that help to take the business towards a much realistic direction (Joslin & Müller, 2016)
• This approach is much focused to the organizational wealth and well being of the business organization
• The Stewardship theory is referred to as an action that helps to protect and increase the ability of both the profit and non-profit organizations. In addition to this, the Stewardship theory helps to create b both societal and economical values in the organizations with changing time phase
• Stewardship theory provides high level business grip over time but it requires to be connected with the stakeholders across the temporal boundaries and societal boundaries.
• Stewardship theory successfully redefines the scope of the activities and also defines the role that it takes in the society.

Agency theory and stewardship theories are the two most widely used theories in the business organizations. In other words, the Stewardship theory can be identified as a complimentary theory of the agency theory (Madison, 2014). Cooperation and collaboration are the two different actions can be obtained by the steward ship theory whereas the agency theory is focused on inter organizational conflict and control measures. In order to explain relationship the Stewardship theory provides non economic premises. In the past 20 to 30 years the Stewardship theory has been credited the organizational behavior scholars however it has been practices and expressed on different forms.

The Stewardship theory holds environmental concerns in which case the organization always believe that the company needs to operate with little amount of impact. Considering the operational and functional boundaries all irresponsible behaviors of the associate stakeholders are needed to be avoided accordingly. The management body of the organization is responsible to determine this boundary. In order to govern the business operation and functionalities towards the success the personal needs are required to be fulfilled by the directors and managers who are belonging to the higher authorities.  According to this theory the leaders or the higher managers should always act honorably and make sure that they are doing the ethical things only (Francoeur, Melis, Gaia & Aresu, 2017). Though, self interests of the managers are considered but above all the interest and objectives of the organizations are undertaken and analyzed. In other words, the  Stewardship theory is defined as a idea of service which is applicable for others and not to fulfill the self interests. This theory puts the view points of every individual in the forward and it include the behavior of the directors.

However, some disadvantages are also associated to this theory and that are as follows:

• The role of Stewards are mostly unrealistic and over simplified from the organizational perspectives
• It fails to generate needful empirical evidence for further application
• Following a CEO and not an operation manager or chairman may sometimes create major issues
• The requirements for the models are absolutely unrealistic
• Application of this theory may reinforce the ego of the senior associates or executives.  

3. Discussion of the relationship of a leader’s values and beliefs to effective governance

After analyzing the governance theory and its application in the real field of application it has been found that there is a close relationship between the leader’s values and effective governance beliefs in the organizations (Bosse & Phillips, 2016). In order to govern any business in both the profit and non-profit organizations certain actions are required to be undertaken by the stakeholders and company associates.  Due to the variable and complex nature of leadership for different corporate sector the governance policies and procedures are also different. Leadership approach needs to design and develop proper interaction and relationship between the activity requirements, team maintenance and individual needs. The directive leadership will improve the personal characteristics and task nature to govern the organization towards goal, clarity and aim. Apart from corporate governance the company also needs to focus of entrepreneurship theories also.  It is determined that leadership core values and beliefs are keys of organizational success.  A great leader is required to possess certain ore values and that are as follows:

Leadership skills: Business associates always require becoming leaders instead of managers (Che & Langli, 2015). Though the leaders must have the ability to manage the stakeholder’s action and possess the capabilities for leading the company.

Vision: People are always focused to know the reason of why, where and how the efforts they are giving matter. In order to maintain the organizational works the leaders must always provide active vision to the workers and other stakeholders.

Trust: The fellow organizational team members must have trust on their leaders to make sure that they are dedicated to their job roles and responsibilities.  Leaders should never make any partiality rather they need to be fair, consistent and loyal to their responsibilities and employee motivation.

Character: Through character analysis the associate people will be able to identify what kind of person their leader is (Wheelen, Hunger, Hoffman, & Bamford, 2017). The leaders should always believe in good work ethics and constant communication. He or she must follow open communication to make sure that their ideas and creativities are undertaking or considering before developing any kind of new norms and values.

Responsibility: Whatever commitment the leaders are providing needs to be fulfilled by the project associates and the employees who are working for the organization.

Integrity: The employees should always support their leaders and also the leader should be accountable for her or his actions and decisions in their responsibilities  

In order to effectively govern any business flexible leadership values are very much crucial. The flexible leadership is referred to as one of the most effective ways through which the changing attitudes and behaviors of the stakeholders can be easily identified. The six different key styles that a good leader needs to implement based on different situation include control, teach, guide, collaboration, reinforce etc (Neubaum, Thomas, Dibrell & Craig, 2017). The term flexible leadership is not applicable for any people but following personal leadership beliefs helps the profit and non-profit organizations to meet its aims, objectives and goals.

Conclusion

From the overall discussion it can be concluded that Stewardship theory assumes the behavior of the organizational managers as trustworthy stewards who are completely focused on the constituents of collective goods that are regardless of the personal interest of the firm’s managers.  The discussion claims that the profit and non-profit organizations are effectively influenced by Stewardship theory. Different governance key theories are available and based on organizational background theses are applied in the business strategic operations. The Stewardship theory or model deals with socioemotional wealth that are mainly used for identifying the attributes of the CEO of both the non-profit and profit organizations associated to Stewardship behavior. The discussion conducted in this report will define whether the attributes are leading the organization towards positive firm performance or not. The analysis helps to recognize the hypothesized construct related with the CEO Stewardship and the performance.  It has been defined that, CEO board members firm and performance relationship is moderated positively with the presence of the affiliated directors and influence of the communities.  In both profit and non-profit organizations the relationship between the CEO and firm performance are positively moderated by the influential directors. Discussions of key theories of governance which are contributed in the businesses are all elaborated in this report. Apart from this, the relationship between the values of the leaders and the beliefs that effectively govern the organizations are also illustrated in this report. It is the responsibility of the higher authority of business organizations to demonstrate the roles and responsibilities of each associate. The ways through which the Stewardship theory can influence and increase the interest of the leaders of the organizations are all elaborated in this report.

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