Stewardship Theory Essay

This review aims to shed light on how board of directors’ behaviours are explained by stewardship theory. There are several theories explaining operation of board of directors’ and their behaviours: agency theory, stewardship theory, resource dependency theory, behavioural theory, social contract theory and legitimacy theory. This paper explores stewardship theory and resource dependency theory to understand operation of board of directors’ and their behaviour. Stewardship theory exists as alternative to agency theory as it has some limitations. Stewardship theory explains how psychological factors affect top managers to work towards same interests of shareholders and organisation. Furthermore, stewardship behaviour can influence by other situational

Furthermore, stewardship theory argues shareholder interests are maximised by shared roles of CEO and chair. Stewardship theory argues that social benefit spreads through organisation over the long term. In other words, individuals willingly to give up personal interests to act in protection of others’ long term welfare. Stewardship theory assumes that the behaviour of the executive are aligned with the interests of the principals. Moreover, according to stewardship theory, dual role of CEO and Chairperson and it gives the single leader with clear direction and faster response to external environment uncertainty and changes (Muth and Donaldson, 1998: Davis et al, 1997: Boyd,

CEO duality has been blamed for poor performance and slow response to change (Boyd, 1995). Some countries adopt agency theory: have an independent chair some others favour of duality. For example, majority of US corporations have the dual CEO-chair whereas in Australia, most large corporations already have a board chair that is independent of the CEO. It is possible that there are national and cultural factors influenced by relationship between CEO governance and financial outcomes different in different countries (Donaldson and Davis