Governance And Stewardship: Key Theories And Their Contributions To Organizational Effectiveness

What is Governance and Stewardship?

Governance and Stewardship is a group of activities that help in an effective management of people or an organization. While governance is defined as the actions used to govern an organization or people, stewardship is defined as the act of supervising people or an organization (Council, 2015).

Effective governance helps to ensure that the organizational policies are robust and effective. It also helps to outline the responsibilities of the organization to its stakeholders such as customers, employees and shareholders as well as the wider community. In a corporate environment, governance can act as the mechanism, procedures and relationship through which an organization can be directed and controlled. Governance structures moreover help to outline the rights and responsibilities of the members of the organization and provide a framework that can help in the decision making process on organizational matters (Michaud, 2014).

The process can involve setting out and pursuing organizational objectives with respect to the organizational environment (Hollertz et al., 2018).Effective stewardship on the other hand is associated with the principles of good governance and is considered to be the cornerstones of good corporate governance (Arnold, 2018). This can also be understood as a form of ethical code for organizations that represents a sense of responsibility of the organization towards the managing and planning of its resources (Kohle & Fitzpatrick, 2015).

The aim of the study is to analyze the key theories of governance that have contributed to organizational effectiveness, develop and understanding about the contributions of stewardship to effective organizational governance as well as to discuss how the values and beliefs of a leader is related to effective governance.

Discussion:

-Key theories of governance that have contributed to organizational effectiveness

Organizational effectiveness is an idea about how effective an organization is towards the achievement of its intended outcomes across several key aspects such as development of leadership, management of talent and human capital, design and structure of the organization (Colbert et al., 2014). According to Lawler (2018), Organizational effectiveness helps to examine the alignment of the organizational process to the objectives, develop reliability, speed and quality of the process, develop strategies to improve the organization and fosters development of organizational capacity. Developing organizational effectiveness involves dimensions such as decision making, change and learning, group effectiveness, self-organization and adaptive systems (Tang, 2017).

Corporate Governance are the sets of activities and principles that can be used to improve organizational effectiveness by monitoring organizational activities, policies, practices and decision making process as well as engaging the stakeholders and corporate agents (Tricker&Tricker, 2015). Different theories of governance exists that helps to address the challenges faced while governing an organization and describes the relation of the organization to its stakeholders (Aluchna&Aras, 2016). Discussed below are some of the main theories of governance in a corporate sector:

Theories of Governance in Corporate Sector

Agency Theory:

This theory describes the relation between the principals (like shareholders) and the organizational agents (like the directors). The theory proposes that the agents are hired by the principals to take care of organizational operations. The responsibilities of running and managing the business are delegated to the management and directors by the principals who expect the agents to make decisions that are at the best interest of the organization and its principal (Bosse & Phillips, 2016).

Pepper and Gore (2015) however pointed out that agents might submit to their own self-interest and can fail to achieve the outcomes expected by the principal. The agency theory aims to delineate ownership of the company from its control. The theory further recommends accountability of the employees towards their actions and responsibilities and priorities of the agents can be realigned by rewards or punitive measures (Mitnick, 2015).

Stewardship Theory:

According to this theory, the function of a steward is to project and maximize the wealth of the shareholders by improving the performance of the organization. Individuals at executive and managerial positions can act as stewards who work for the shareholders, protecting their investments and helping them to maximize their profits (Glinkowska & Kaczmarek, 2015). Stewards are motivated by organizational performance and success and focuses on the autonomy and the position of the employees and executives of the organization in a way that can increase the profitability of the shareholders. The theory also posits that the employees of the organization should take ownership of their responsibilities and duties with diligence (Waldkirch&Nordqvist, 2017).

Resource Dependency Theory:

This theory puts emphasis on the functions of the board of directors to provide access to necessary resources that are needed by the organization and its operations. The theory suggests that the board of directors play a pivotal role in the providence and securing the resources that are essential to an organization by linking them to the external environment of the organization (Yeager et al., 2014).

Plugge and Janssen (2014) pointed out that the organizational functions can be supported through the provision of necessary resources and ensure the long term survival of the organization. Important resources such as necessary skills, information and access to important components such as the buyers, suppliers, social groups and policy makers are brought to the organization by the board of directors. The theory also differentiates directors into four groups such as business experts, insiders, community influencers and specialists (Tricker&Tricker, 2015).

Agency Theory

Stakeholder Theory:

This theory aims to develop accountability of the organizational management to various stakeholders of the organization. According to this theory, individuals at managerial positions in an organization are responsible for the development and maintenance of relationships with the business partners, employees and suppliers. Moreover, the theory also suggests that the decisions of the managers should be done with consideration of the best interest of all the involved stakeholders as an intrinsic aspect and also proposes that none of the interest should dominate others (Tricker & Tricker, 2015).

Transaction Cost Theory:

This theory proposes that an organization can have several contracts either within the organization itself or with the market. These contracts help to create a value for the organization (Tricker & Tricker, 2015). According to Wacker et al. (2016), each of the contracts with external parties can have its own costs which are known as the transaction cost. Moreover, the theory also suggests that a transaction can be undertaken if the transaction cost of accessing the market is more than contracting inside the organization. Transaction cost also helps to evaluate uncertainty and asset specificity which thereafter determines the acceptance of the cost (Brice et al., 2014).

Political Theory:

This theory suggests an approach of implementing a voting system by the shareholders instead of depending on the purchasing power of each shareholder. According to the theory, the corporate power, privilege can profits should be allocated on the basis of the votes and the power of the governance (Tricker&Tricker, 2015).Held and Maffettone (2017) suggested that this theory directly addresses changes in the financial, labor and product market and involves shareholders, board of directors and management in the process of governance.

Contributions of stewardship theory in general to effective governance in non-profit and for-profit organizations

The stewardship theory suggests that managers acting autonomously would behave as responsible stewards for the organization and assets under their control. It has been assumed by several authors that effective stewards would place higher importance to cooperation instead of defection if they are provided a choice between self-centric and organizational-centric behavior (Glinkowska and Kaczmarek, 2015).According to Waldkirch and Nordqvist (2017), the stewardship theory contributes towards several advantages for corporate governance. Discussed below are some of the most important contributions of the stewardship theory towards effective governance in profit as well as non-profit organizations:

Identifying the right person to lead the organization:

Stewardship theory specifies characteristics and attributes that a leader or a manager must follow to effectively guide the organization towards its goals and objectives. Leaders possessing such attributes are more likely to act as good stewards and thus helping an organization in the selection of individuals who can be in a leadership position. Stewardship theory also helps to understand the responsibilities of a steward in an organization thus helping to find the right fit for individuals in such a role (Subramanian, 2018).

Stewardship Theory

Developing a structure of interaction between owners and managers:

Boon (2018) pointed out that the stewardship theory helps to develop a structure between the owners and managers which can in turn support better communication between them and align their activities so as to maximize the profitability of the shareholders. The trust and power that stewards have from the shareholder also allows them to act as an intermediate between the owners and management, cascading information between them as well as representing each other’s concerns (Glinkowska and Kaczmarek, 2015).

Creates an emphasis on the role of CEO as ‘unambiguous and unchallenged’:

Stewards also help to ascertain the position of the CEO at the top of the organizational hierarchy and therefore maintain the organizational structure and power centralization. This can help to make the process of corporate governance smoother as the stewards would help in the implementation of policies developed by the CEO, addressing any concerns related to it to prevent ambiguity (Glinkowska&Kaczmarek, 2015).

Provides a unified direction and a strong system of command:

Stewards also help to create a unified direction for the organization and a single voice for the management and ensure that organizational operations are aimed towards ensuring satisfaction of the shareholders. Moreover, a steward also helps to create a singular channel for the communication of the business needs with the shareholders as well as communicating the needs of the shareholders with the business. This can prevent confusions regarding organizational activities and directing their actions to a specified set of objectives (Waldkirch&Nordqvist, 2017).

Developing organizational culture through accountability and competence:

Glinkowska and Kaczmarek (2015) pointed out that effective stewardship helps to instill the values of accountability and competency throughout the organization, at all levels. Such values help to develop a positive culture in the organization and also help in better governance of the organization by monitoring the work culture for any scope for development.

Improving organizational performance:

Madison et al. (2017) suggested that stewardship theory also helps to develop organizational performance by helping to develop competencies of the employees and supporting a better working environment. The increased productivity of the employees eventually helps to improve organizational performance. A good steward is able to effectively manage the resources and allocate them in an efficient and optimized manner to prevent wastage of resources thereby minimizing the organizational expenses and thus supporting effective corporate governance.

Provides motivation to employees:

According to Glinkowska and Kaczmarek (2015), stewards can also provide motivation to the employees through their own code of conduct and setting an example which others can follow. They can also act as organizational leaders and encourage participation of the employees in the organizational affairs. Good stewards are able to empower the employees and create autonomy for them which can significantly motivate the employees to perform better.

Resource Dependency Theory

Facilitating Internal Governance:

Stewardship not only helps to develop effective governance, but also facilitates the process of governance by developing reliability of the organizational processes, helping to improve organizational performance, increasing organizational capacity and effectiveness as well as allowing more effective management of the employee and human capital through their strategic directions (Madison et al., 2017).

A discussion of the relationship of a leader’s values and beliefs to effective governance in organizations

The role of a leader is to effectively guide and lead people or an organization towards specific goals, leading by exemplary behavior and acting as a role model, balancing vision and execution and developing a positive work culture (Groves, 2015). Liden et al., (2016) suggested that the values and beliefs of a leader are an important aspect that can help to determine the efficacy of the organizational governance in any organization. Discussed below are the important values and beliefs a leader should possess that can help to ensure effective organizational governance

Integrity:

This is one of the most important leadership values that ensure ethical and moral competence of the individual in a leadership position towards their responsibilities. Integrity can be exhibited though the strength of their moral fabric and their ability to keep their promises. Integrity of the leader’s character helps to gain trust from the employees and thus help in effective governance (Liden et al., 2016).

Competency:

This is another vital quality of a leader that is exhibited by an expertise in organizational processes and in leadership qualities. A higher competency of a leader also helps to gain trust from the employees. Groves (2015) pointed out that for a leader to be truly competent, it is necessary to exhibit competency in both professionalism and leadership qualities that can help them to effectively lead and guide the organization. This also helps the leaders gain batter understanding of the organizational dynamics and therefore govern the organization more effectively (Liden et al., 2016).

Accountability:

It has been suggested that accountability is almost synonymous with effective leadership since effective leadership implies being accountable for their own actions as well as the actions of the subordinates. Moreover, a leader should be accountable and responsible for the decisions, policies, products, organizational governance, administration and implementation of policies and be answerable for the ensuing consequences to the shareholders (Ciulla, 2017). Accountability also ensures that the leaders show liability towards the achievement of organizational objectives or failure to do so. Liden et al. (2016) suggested that an accountable leader is trusted and respected by their subordinates which help in effective governance of the organization.

Stakeholder Theory

Courage and confidence:

A good leader should also show courage and confidence in their own actions and decisions and should be able to instill the same among the subordinates. Through higher confidence and courage, a leader can help to encourage the employees towards better performance and productivity as well as guide the organization through difficult times (Ciulla, 2017).

Honesty and transparency:

Liden et al. (2016) suggested that a good leader also should be honest and transparent to their subordinates and stakeholders. The honesty and transparency helps to prevent ambiguity and confusion and instead gain confidence from both shareholders and subordinates. The confidence from the subordinates further helps a leader to govern the organization more effectively (Ciulla, 2017).

Commitment:

A good leader should also be committed towards the development of the organization and upholding the organizational values and policies. A committed leaders also highly driven to achieve the organizational goals, supporting the subordinates to achieve better performance and helping to ensure compliance to organizational standards and policies. Such commitment therefore helps to govern the organization in a holistic manner (Liden et al., 2016).

Delegation:

According to Armstrong et al. (2018), a good leader also knows when and to whom to delegate certain powers and responsibilities which can increase the involvement of the subordinates in the decision making process and thus supporting better governance of the organization.

Conclusions:

Governance is a set of activities that aims to govern an organization and helps to ensure proper implementation organizational policies. Governance provides mechanisms and procedures through which an organization can be controlled, monitored and guided. Stewardship is a set of behavior that helps to supervise and guide an organization towards its objectives. Thus both governance and stewardship are important aspect for organizational management. Through the study important theories have been identified that have contributed to organizational effectiveness such as the agency theory, stewardship theory, resource dependency theory, stakeholder theory, transaction cost theory and political theory.

The study also analyzed the impact of stewardship theory to effective governance in profit and non-profit organization. It was found that stewardship theory helps to identify the right person to lead an organization, develop a structure of interaction between owners and managers, emphasizes on the role and position of the CEO, provides a unified direction for the organization, and helps to develop a positive organizational culture, improve organizational performance, provide motivation to employees and facilitate internal governance. Moreover the values and beliefs of leaders such as integrity, competency, accountability, courage, confidence, honesty, transparency, commitment and delegation of power have been identified which can help in a better governance of the organization.

Transaction Cost Theory

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