Write a summative paper on seminal theories of governance and stewardship that inform effective organizational leadership in non-profit or for-profit organizations.
Numerous scholars have come up with definitions concerning the concept of governance. Most perspectives, however, seemed to be judged by the political perspective while ignoring other views. Governance involves a lot of creation, execution, and implantation of well-formed structure within an organization. The policies, however, are to be backed by shared goals of the primary stakeholders of the organization. Governance also involves having the dreams of the people who do not have formal authority or policing power of an organization.
Individual management involved in organizational governance should have policy development skills. These policies must be non-regulatory. The instruments used in the policy implementation should be done in cooperation with other actors of the organization (Hatch, 2018).
The phenomenon of governance is growing by the days. The literature therefore about management is expandable. Through this, several theories are developed. These theories help in the development of the organization and how to understand management even better. These essays, therefore, seek to show how different governance theories are developed to benefit both nonprofit and profit organizations. The article even develops various ways in which the arguments implemented works for some organizations while fails to work for other organization (Hatch, 2018).
The essay then focuses on one of the theories, which is one of the widely used methods of governance. The stewardship theory and how it contributes to the effective management of profit organization. The approaches exploit the different success stories of organizations that have employed this theory. The essay bases the arguments on developed works of literature. The articles finally relate how leadership beliefs and values can be used to conduct effective governance to existing organizations. How managerial values and leadership can influence decisions in an organization that leads to prosperity of the organization or failure.
Agency theory
One of the methods of governance used to create efficiencies in the organization. The argument revolves around three critical stakeholders. The owners of the company. The ones who put up the company are referred to as principals of the company; they are usually the ones who set the goals and the vision of the organization and the company. The second stakeholders are the management hired to oversee the daily operations of the organization. The managers are the ones referred to as agents in this theory.
According to the literature article by Johnson, Bosse and Phillips (2016), the principal suffers losses on their returns since they must pay the agents. The profits they gain however comes from the profit made by the company as principals (Bosse & Phillips, 2016).
The literature develops to execute that if principals were managing the companies themselves, they would be gaining interest that they use to pay the agent (the employed managers). However, the literature according to Hillman and Dalziel (2014), contradicts these assumptions by explaining that; employing professional managers lead to better profits than it would be if the principals managed the organizations themselves. Especially if the principals of the organization decide to use an incentive to make the agents perform. The motivation might be a managerial promotion or even financial rewards (Bosse & Phillips, 2016).
The other essential stakeholders from this theory are the board. The board is mandated to exercise strict control, supervision, and monitoring of the performance of each agent. According to the literature by Eisenhardt (2015), a board is developed to instead protect the interest of the principals than the benefit of the agents. The principals, therefore, use the board to promote their interest (Rowlinson, Hassard & Decker, 2014).
Most of the decision-making process is therefore left for the board. The board, therefore, is responsible for most of the decisions made in the organization. This method is highly useful since everyone is easily accounted for the choices they make. The selection is usually based on the advantages of the organization since every decision is made to benefit the organization.
Resource-dependence theory
A theory that depends on the external resources that the organization depends on. This is mostly done under the procurement department of the organization. This is the essential tenet of this organization. Therefore, most of the decisions made by the management of the organization revolve around the external resources that when the organization acquires, they get profits. According to the literature from Malatesta and Smith (2014), resources of the organization implicates the general operations of the company. It, therefore, directs the recruitment of the board members and employees, the production strategies, the contract structure and the external links of the organization (Malatesta & Smith, 2014).
According to literature by Malatesta and Smith 2014 organizations depend on multidimensional resources; that include labor, capital, and raw materials. The organization might have a lot of resources to concentrate on but to choose the most important one they use the principal of criticality and scarcity. Critical resources are the one needed by the organization so that the organization operates. The literature gives an example of a burger outlet organization that needs bread to operate (Malatesta & Smith, 2014).
This theory according to the literature by Hillman et al., (2014), argues that management of an organization should view everything apart from themselves as resources. For-profit organizations even, customers are a resource that the company dependence on. Since the satisfaction of the company means happiness of the managers regarding revenue and profits, customers are also viewed as resources as profits.
For a non-profit organization, this theory makes them be a commercialized entity. When the nonprofit organizations have fewer grants from the government to afford resource. The management depends on marketization to compete for the scarce resources with profit-making private organizations. Kannah and Brah (2017) argue in their literature that this theory is the main reason for management complains from non-profit organizations. This is due to a reduction in quality of services from non-profits organization.
In governance, the board is formed to provide resources that will help in achieving organizational goals. Intervention decisions by the committee are only made to advocate for strong financial, human and intangible supports. The board members, therefore, tap into their networks to help get decisions that will help attract resources to the organization. The theory, therefore, according to (Jajja et al., (2017), is dependent on decisions made by the executives and very little approval from the board.
Stakeholder theory
The theory assumes that in an organization different stakeholder surpass shareholder and the board members only. The theory, therefore, is developed in three critical approaches. The approaches include; the descriptive approach, the normative approach, instrumental approach and the power approach (Malatesta & Smith 2014).
According to Malatesta and Smith, the clear approach examines that organizations are managed by the board of directors considering the corporate constituencies. Managers oversee the organization according to the nature of the firm (Malatesta & Smith 2014).
The second approach is the instrumental approach. According to Hatch (2018), the pragmatic approach uses data to determine the relationship between management and each stakeholder group. The stakeholder groups are also measured by the way they contribute equally to the goals of the organization. The stakeholder that mostly provide profits and efficiency to the targets are considered the most important by the management of the organization (Hatch, 2018).
The normative approach is identified as the primary path explained in the literature by Donaldson and Guo (2016). The moral and philosophical guidelines of an organization determine the most important stakeholders. The management is therefore served with the responsibility of deciding which of stakeholders the best are morally. These guidelines are given to the managers to identify the one that is most appropriate to the principles of the organization. Priorities are therefore provided to such stakeholder although the interest of all the stakeholders is tabled and discussed (Guo, Yolles, Fink & Iles, 2016).
Mitchell et al., (2014), attribute the stakeholder theory to power as an approach. The literature develops that the more power a party imposes on the manager, the more attention the stakeholder is considered necessary. According to this assumption power and legitimacy helps the management of an organization determine which the most important stakeholder is. Therefore, the one with the highest power of authority, their interest are placed first, while the ones with a rather low power their interest are considered later by the management (Bosse & Phillips, 2016).
In governance the theory has implications. For-profit organizations, managers determine the return of each stakeholder. The performances are then paid to each stakeholder according to the input of each of them. This assumption is based on the literature by Donaldson and Decker (2014).
The theory also advocates for ethical practices by stakeholders. Stakeholders who participate in Corporate Social Responsibilities are supposed to receive the highest returns from the organization. The participation of these individuals in these responsibilities is essential even if it also means the reduction of profits for the organization; this is according to the journal by Waldkirch and Nordqvist (2017).
The board, therefore, is given the responsibility of not only deciding the plans of the organization but also determining which sustainable practices will the organization participate in. These sustainable practices should importantly help the surrounding community. The interest of the stakeholders at this stage is therefore sidelined. The organization should, therefore, be focused on providing CSR for the neighboring town (Waldkirch & Nordqvist, 2017).
Stewardship theory
Stewardship theory is theoretically the deconstruction of agency theory. Unlike agency theory where managers are considered agents to facilitate the interest of the principals, in this case, managers are stewards on their own. They act in their interest. These don’t mean that the importance of the principals is not considered. Once the principals of the organization have developed the policies and the goals of the company, all the strategies that will lead to achieving of these goals are left for the employed managers to decide (Glinkowska & Kaczmarek, 2015).
This theory is one of the effects of governance on both profit and nonprofit organizations. The stewardship theory gives an evident shareholder satisfaction. This is done by having a single leader. Normally a CEO. One channel of communication allows for a secure connection between the organizations’ needs and the needs of each stakeholder towards achieving the desired profits. There is also the reduction in confusion as to who is supposed to make important decisions of the organization (Biermann & Harsch, 2017). However, the CEO who is in charge is expected to put personal gains aside. They should, therefore, be trustworthy and take decisions that put the good of the organization first (Neubauer & Lank, 2016).
A second advantage of how stewardship theory leads to active governance for-profit organizations is developed by the literature from Romero and Garcia (2016). The research stresses the role of stewardship. The steward in charge of the organization protects and take cares of others. Organizations, therefore, make one person a steward. The steward, thus, protects the interest of all the stakeholders and decide each stakeholder. Their role, therefore, is to create an environment where the in-house organization managers work without interference from the external shareholder. The interests of the shareholders are also accomplished. This governance system also works for profit organizations as managers’ work well free from shareholder pressure (Romero-Merino & García-Rodriguez, 2016).
Additionally, for-profit organizations that embrace stewardship theory, they are likely to receive high returns. These are because the board formed in this case consists of professionals. The professionals are derived from in-house members. The professionals apply their intimate knowledge to the growth of the company. It is therefore assumed that the organization will have the best strategists. The development of strategies will, therefore, be active and timely. The policy, thus, translates to improved profits for the organization (Le Breton-Miller, Miller & Bares, 2015).
Previous literature also shows that stewardship theory is one that leads to deep commitment of managers towards achieving the success of the organization. Acting on their strategies and decisions gives a sense of ownership and responsibility. When the decision leads to failure, the manager owns up to it. When the decision becomes a success story, the manager is appreciated for the same. With that perspective, managers are likely to throw in all the commitment to make sure that their strategy works out. The organization, therefore, has in full the determination of the managers to their advantage (Tricker, 2015).
The managerial motivation or incentive that arise from agency theory is subverted in this case. According to the literature by Madison et al., (2016), the stimulus makes the managers opportunistic shirkers. They act and perform only when they are aware that there is an incentive tied to their action or the strategies. They do not want to do a good job but instead want to please the stakeholders for incentives. This might work for profit organization but will be a considerable disadvantage to a nonprofit organization (Madison, Holt, Kellermanns & Ranft, 2016).
For this reason, the non-profit organization is advantaged to use the stewardship theory for governance. According to Madison et al. (2016), acknowledges that executive managers for nonprofit organizations want to do a good job that will help the society. They are acting on their intrinsic motivation. Therefore, for non-profit organizations, there is no question of how the managers will achieve corporate responsibilities like it is a question in other theories, like the agency theory of governance (Tata & Prasad, 2015).
For a non-profit organization, there are no benefits that are tied to individuals or personal gains. The focus is on the structures and whether the structures will lead to interests of the society rather than the individuals or for the organization. This is in line with Tata and Prasad (2015) literature which states that stewardship theory provides the best governance option. The stewardship theory holds that performance variations arise from whether the basic situation of the organization help in implementing the plans for high corporate performances (Terry, 2015).
The structure of a nonprofit organization, therefore, requires a stewardship theory as the form of governance (Subramanian, 2018).
Relationship of leadership values and beliefs to effective governance in organizations
Leadership roles in organizations revolve around motivating a group of people who are under our leadership to act towards achieving a common goal. The most critical leadership value, therefore, has the power to persuade someone to carry out a task in a way that they do not vision it but you as a leader vision the same this is according to the article by Ferrell and Fraedrich (2015).
The article by Ferrell and Fraedrich (2015) explains that romantic endeavors can be very challenging to communicate to another person. The leadership values and skills of a manager will, therefore, come in at this stage to determine the best way to achieve the organizational goals. The result can only determine the leadership values and beliefs of a leader. The effect is measured by how the person has achieved the goals and vision of the organization (Bernstein, Buse & Bilimoria, 2016).
The belief of attributed charisma and idealized influence. According to the literature by (Bryson, Crosby and Bloomberg 2014), an influencer leader must have values built around trust and confidence of others. The leader will, therefore, show commitment, ethics and his involvement to gain the trust of stakeholder in the organization. These three values are the best form of governance as other stakeholders would want to relate the same way by acting appropriately, all these will lead to the development of the organization (Bryson, Crosby & Bloomberg, 2014).
Value of inspirational motivation
This value involves the leader communicating with the people he leads using their confidence, energy, and enthusiasm to create an appealing convincing vision them too. This value and belief are the most important since most people do not see the leaders as you would see them yourself as a leader. This governance method is quite an uphill task (Ferrell & Fraedrich, 2015).
Individual importance
This is a belief where leaders view every employee of an organization as being a contributor to the success of the organization. The leader, therefore, achieves effectiveness governance by exploiting each of the employees’ strengths and suppressing their weakness. The organization is therefore likely to benefit from these kinds of management as each stakeholder will be giving their best (Rosemann & vom Brocke, 2015).
Acceptance of intellectual stimulation
The value of always having that desire to improve. These are done through enhancing competition between the stakeholders. The leaders continuously improve the situations where the workers operate to stimulate them into doing even better. The skills also accept change suggested from subordinates. The subordinates also feel part of the organization, therefore, enhancing their commitment to the organization. The way governance is efficient to a leader as it improves the company to new and better achievements (Bryson, Crosby & Bloomberg, 2014).
Leadership values and beliefs lead to effective governance through strict strictness. The leader should possess values that can enable him correct poor practices and internal conflicts between employees and other stakeholders.
The explanation, therefore, demonstrates how leadership belief leads to effective governance and organizational development.
Conclusion
The paper, therefore, explains various theories of governance that include; agency theory, stakeholder theory, resource dependence and stakeholder theories which affect the organizational leadership in both nonprofit and profit organization. The assumptions are derived from various scholarly articles that justify the essay.
References
Bernstein, R., Buse, K., & Bilimoria, D. (2016). Revisiting agency and stewardship theories. Nonprofit Management and Leadership, 26(4), 489-498.
Biermann, R., & Harsch, M. (2017). Resource dependence theory. In Palgrave Handbook of Inter-Organizational Relations in World Politics (pp. 135-155). Palgrave Macmillan, London.
Bosse, D. A., & Phillips, R. A. (2016). Agency theory and bounded self-interest. Academy of Management Review, 41(2), 276-297.
Bryson, J. M., Crosby, B. C., & Bloomberg, L. (2014). Public value governance: Moving beyond traditional public administration and the new public management. Public Administration Review, 74(4), 445-456.
Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.
Glinkowska, B., & Kaczmarek, B. (2015). Classical and modern concepts of corporate governance (Stewardship Theory and Agency Theory). Management, 19(2), 84-92.
Guo, K., Yolles, M., Fink, G., & Iles, P. (2016). The Changing Organization: Agency Theory in a Cross-cultural Context. Cambridge University Press.
Hatch, M. J. (2018). Organization theory: Modern, symbolic, and postmodern perspectives. Oxford university press.
Jajja, M. S. S., Kannan, V. R., Brah, S. A., & Hassan, S. Z. (2017). Linkages between firm innovation strategy, suppliers, product innovation, and business performance: Insights from resource dependence theory. International Journal of Operations & Production Management, 37(8), 1054-1075.
Le Breton-Miller, I., Miller, D., & Bares, F. (2015). Governance and entrepreneurship in family firms: Agency, behavioral agency and resource-based comparisons. Journal of Family Business Strategy, 6(1), 58-62.
Madison, K., Holt, D. T., Kellermanns, F. W., & Ranft, A. L. (2016). Viewing family firm behavior and governance through the lens of agency and stewardship theories. Family Business Review, 29(1), 65-93.
Malatesta, D., & Smith, C. R. (2014). Lessons from resource dependence theory for contemporary public and nonprofit management. Public Administration Review, 74(1), 14-25.
Neubauer, F., & Lank, A. G. (2016). The family business: Its governance for sustainability. Springer.
Romero-Merino, M. E., & García-Rodriguez, Í. (2016). Good governance in philanthropy and nonprofits. The Routledge Companion to Philanthropy, 395.
Rosemann, M., & vom Brocke, J. (2015). The six core elements of business process management. In Handbook on business process management 1 (pp. 105-122). Springer Berlin Heidelberg.
Rowlinson, M., Hassard, J., & Decker, S. (2014). Research strategies for organizational history: A dialogue between historical theory and organization theory. Academy of Management Review, 39(3), 250-274.
Subramanian, S. (2018). Stewardship Theory of Corporate Governance and Value System: The Case of a Family-owned Business Group in India. Indian Journal of Corporate Governance, 11(1), 88-102.
Tata, J., & Prasad, S. (2015). National cultural values, sustainability beliefs, and organizational initiatives. Cross Cultural Management, 22(2), 278-296.
Terry, L. D. (2015). Leadership of public bureaucracies: The administrator as conservator. Routledge.
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
Waldkirch, M., & Nordqvist, M. (2017). Finding benevolence in family firms: The case of stewardship theory
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download