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Comparison of agency theory and stewardship theory paper phd

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Management
Introduction
The stewardship theory of management and the agency theory are some of the models that can be
used to provide insight on how to increase the efficiency and productivity of an organization.
The agency theory dictates that, in any firm, “There is an agency loss which is the extent to
which returns to the residual claimants fall below what they would be if the principals, the
owners, exercised direct control of the corporation (Donaldson and Davis 50). Thus, the
shareholders have to find effective means of reducing this loss by offering incentives to
corporate managers to maximize the profits of their principals” (Kopp n.p.). On the other hand,
the stewardship theory denotes that a company’s leaders are stewards and are obligated to
maximize the “shareholders’ wealth through firm performance” (Davis et al. 25). This paper
illustrates some of the key areas where the theories overlap and where they differ. Additionally,
it sheds light on how an individual can shift their mindset from that of an agent to that of a
steward and the effects such an occurrence can have on the organization.
Where the Theories Overlap
One of the main areas where the theories overlap is the fact that a company’s shareholders do not
have full control of its operations. The determination of how the various production operations
should be carried out is done by the organization’s executives. However, the latter must ensure

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their decisions are based on the essence of “maximising shareholder interests” or shareholders’
wealth” (Donaldson and Davis 50; Davis et al. 25).
How the Theories Differ
The major area where the theories differ is the illustration of how the executives discharge their
duties. According to the stewardship theory, the executives’ behaviors are dependent on the
shareholders’ interests; hence, they cannot make decisions that might contravene the principals’
wishes. Therefore, even in scenarios where the interests of the principals and the executives
differ, the latter “place higher value on cooperation than defection” (Davis et al. 24). It serves as
the rationale why stewards are deemed to have pro-organizational behaviors, which is one of the
factors depicting their commitment to making sure the principals’ interests are upheld at all
times. On the other hand, the agency theory denotes that the executives’ behaviors are not
influenced by the shareholders’ wishes. It is the main reason why the shareholders feel an agency
loss is likely to occur, which may be evidenced by the fact that the amount of profits they receive
at a respective period might be lower than what they should have gained if they exercised direct
control of the corporation” (Donaldson and Davis 50). Nevertheless, as mentioned earlier, the
principals may opt to use various ways of reducing the agency loss, such as allowing the
executives to own some of the company’s shares, thus, “optimizing the relationship between
principals and agents” (Kopp n.p.).
How an Individual Can Move from the Mindset of an Agent to That of a Steward
The insight from the agency theory depicts that the best way an individual can shift their mindset
from being an agent to a steward is by developing pro-organizational behaviors. In such a
scenario, one should always make sure their interests are aligned to those of the shareholders,
which implies that they should not engage in any actions contravening the principals’ wishes.

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Surname 1 Student’s Name Professor’s Name Course Date Management Introduction The stewardship theory of management and the agency theory are some of the models that can be used to provide insight on how to increase the efficiency and productivity of an organization. The agency theory dictates that, in any firm, “There is an agency loss which is the extent to which returns to the residual claimants fall below what they would be if the principals, the owners, exercised direct control of the corporation” (Donaldson and Davis 50). Thus, the shareholders have to find effective means of reducing this loss by offering “incentives to corporate managers to maximize the profits of their principals” (Kopp n.p.). On the other hand, the stewardship theory denotes that a company’s leaders are stewards and are obligated to maximize the “shareholders’ wealth through firm performance” (Davis et al. 25). This paper illustrates some of the key areas where the theories overlap and where they differ. Additionally, it sheds light on how an individual can shift their mindset from that of an agent to that of a steward and the effects such an occurrence can have on the organization. Whe ...
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