Stewardship Theory PDF

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Lecture notes - stewardship theory...

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Stewardship Theory Another theory dealing with the relation between the shareholders and the management within the corporation is the stewardship theory that builds upon theory Y by McGregor’s (1960) positive view of humans within organizations. The theory of stewardship is a psychological and sociological approach to this relationship that was mainly introduced in the later 90s as Davis, Schoorman & Donaldson (1997) differentiate stewardship theory from the theory of agency. Instead of treating the relationship between the principal and the agent, stewardship theory deals with the relationship between the principal and the steward in where the interest of the principals motivates the stewards’ behavior (Davis, Schoorman, & Donaldson, 1997). The authors argue that the subordinates of the shareholders to be collectivists, act pro-organizational, and to be trustworthy. Boers et al. (2017) declares that these behaviors often can be seen in family firms as they tend to be characterized by high levels of family member as well as organizational identification and where socio-emotional wealth is in focus.

By the collective behavior among the stewards, the objectives get aligned with the objectives of the principals and the corporation in general. As the objectives are joint with the shareholders among the management, the firm performance tends to increase, and shareholders are benefited. (Davis, Schoorman, & Donaldson, 1997) As the stewards act proorganizationally and in line with the collective objective, the person can be trusted and should be which differentiates with the agency theory where agents are assumed to act aligned with their own interest and thus needs monitoring (Eisenhardt, 1989). Davis et al. (1997) argue that stewards are highly self-motivated and should be trusted, thereby monitoring may be counterproductive. Hence, a lower need for control of the management results in a decreased monitoring cost.

There are two factors that affect the choice of stewardship behavior; the psychological factor and the situational factor (Corbetta & Salvato, 2004). Among psychological factors, personal power, intrinsic motivation, and a high level of identification can induce stewardship behavior (Davis, Schoorman, & Donaldson, 1997). The relation between a high level of identification

and stewardship can be explained by that these individuals are likely to feel a feeling of membership with the corporation (Zahra, Hayton, Neubaum, Dibrell, & Craig, 2008) . Lee & O’Neill (2003) suggest that intrinsic motivation and personal power are personal attributes where the individual is motivated by intangible rewards and personal development. The choice of stewardship is also affected by situational factors including organizational culture and management philosophy (Donaldson & Davies, 1991). Davies et al. (1997) suggest that as well management philosophy as an organizational culture that is impacted by collectivism, involvement-oriented, and with a low level of power distance will impact the level of stewardship....