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Introduction of Seminal Theories of Governance and
Stewardship in Organizational Effectiveness
It is important to know that
concepts of governance & stewardship are critical for organizations, not
only for their organizational effectiveness but also for the effectiveness of
leadership. However, it is vital to look at these concepts separately so that
their real perspective can be understood. If governance is looked in the
context of organizations, then it is a concept, which is relevant to all the
processes and systems, which are concerned with the supervision, management,
direction, accountability, as well as, the effectiveness of an organization.
Every organization has some objectives to achieve, and those objectives can
only be achieved by implementing a proper governance structure, which comes up
with important decisions to make with a proper implementation
Key Theories of Governance
contributing to Organizational Effectiveness
It is vital to keep in mind that
governance theories are critical for organizations in so many ways. They use
governance theories to manage their ethical policy, as well as, securing the
organizational assets, which are valuable. There are a variety of governance
theories, which have been developed and discussed over the period of time,
however, three important governance theories are going to be discussed here:
Stakeholder Theory of Governance
of Seminal Theories of
Governance and Stewardship in Organizational Effectiveness
The stakeholder theory of
governance is one of the important governance theories for an organization
because it talks about all the stakeholders in an organization. An organization
has various perspectives to manage keepings its stakeholders in a context like
they have to manage their business, as well as business ethics. It means that
the values and morals of an organization will be discussed under the umbrella
of this particular theory. It is a fact that business activities of an
organization can affect a variety of stakeholders, and it is asserted that an
organization should keep them all in the mind when a policy or process is
developed and implemented. Every stakeholder has its own interests, and it is
the responsibility of the organization to protect those interests in the best
possible manner. The corporate leaders should understand that each stakeholder
is important, so each stakeholder should be given due attention
The organization should also
understand as per stakeholder theory that there are internal, as well as,
external stakeholders. The directors, managers, as well as employees, are
considered internal stakeholders, on the other hand, shareholders, government,
competitors, environment, society, suppliers, as well as, auditors are
considered external stakeholders. It is always argued whether an organization
should consider external stakeholders while managing their business policy. It
should be understood that if a business organization is making an impact on
external stakeholders, then it is expected from it that it will protect their
interests as well. So, keeping external stakeholders in the policy and
management is crucial, otherwise, an organization will not be considered an
ethical organization, refusing the essence of corporate social responsibility.
The society is a critical external stakeholder, and it is the responsibility of
the organization to work for the betterment of society. It should also keep an
ethical way of handling its internal stakeholders such as employees because
they are one of the most critical assets of the organization
Agency Theory of Governance
of Seminal Theories of
Governance and Stewardship in Organizational Effectiveness
It is a fact that an organization
has a variety of stakeholders, and one of the important stakeholders is its
shareholders. It is the responsibility of the corporate management of an
organization that they do take every possible step to protect the interests of
its shareholders, as they have their share in the equity of an organization.
The shareholders have no direct say in an organization because they are not
part of the decision making, but still, they are crucial in so many ways. So,
as per the agency theory of governance, it is the responsibility of management
that they make policies and processes, which are also beneficial for its
shareholders. They cannot make policies, which may only look at the internal
benefit of an organization. The board members, as well as, corporate directors
have to make so many strategic decisions. So, every strategic decision should
look at elements, which are relevant to shareholders. However, it is important
to mention here that it is not an easy thing to act as per the agency theory
because a lot of complexities are involved in the process. Still, the role of
agency theory is critical for corporate governance. There are two primary
elements to look at in the agency theory; principle and agent. As per agency
theory, it is the responsibility of the agent to protect the interest of its
principle. In a case of shareholders, the management and leadership of the
company is agent, and a shareholder is a principle. The decisions are made by
the agent for any future perspective, which should protect all the relevant
rights and interests of principle. So, the role of agency theory is very
significant in the effective governance of an organization
Resource Dependency Theory of
Governance of
Seminal Theories of Governance and Stewardship in Organizational Effectiveness:
An organization has to manage its
business functions from different perspectives, and each perspective can be
important in its own manner. Different elements are crucial in making strategic
decisions, and one of the concepts to look at governance is Resource Dependency
Theory. It is a theory related to governance, which looks at different external
resources, which make an impact on the organization in so many ways. These
resources are essential for the organization because they can change the
overall organizational behavior. It is a fact that every business organization
will have to rely on certain resources, which are external, and each resource
has its own importance. For instance, if a logistics company is kept in mind,
then it is known that it has to rely on various external resources such as
suppliers, transportation, warehouse, funds, labor, as well as, technical
resources. A logistics company cannot sustain its business without these
resources, because they will always need these resources to manage their
business operations. Without a transportation facility, they cannot deliver the
products to target customers. It means that when management makes any decisions
related to business operations, they must look at these external factors, and
give it their due importance. They cannot ignore these external factors when
making any ethical and principle policy. One resource is connected to the other
in a different manner, and their dependency requires that all resources are in
place and well managed. For instance, if there is no technical resource to
communicate between organization and warehouse facility, where products are
stored, then how an order will be delivered to the customer. It means that if
an organization wants to achieve ultimate organizational effectiveness in its
business processes, and then its leadership will have to integrate the essence
of resource dependency theory in the strategic process
Contributions of Stewardship Theory
in Effective Governance in Non-profit and For-profit Organizations
Understanding Stewardship Theory
of Seminal Theories of
Governance and Stewardship in Organizational Effectiveness
In Stewardship Theory, the real
concept revolves around the steward, who is responsible to take care, as well
as, protect the needs of its shareholders, owner or anyone, who has given the
responsibility to steward to manage things. It would be easier to understand
this theory with an example. For instance, there is a business organization
having one owner, and he has to overlook all organizational matters. Now, in
this situation, the owner cannot handle everything on his own, so he will hire
some executives and managers to manage different organizational matters. So, an
executive managing any essence of business is actually the steward, who is
dedicated by the owner on his behalf, with this belief that steward will make
decisions, which are in the best interest of the organization. The role of
steward will be crucial in so many ways because he has to protect the interest
of organizational shareholders, otherwise, things can get difficult to manage
It
is believed that a steward is someone, who is there to make decisions, which
are in favor of the organization to make profits, and these profits will
maximize the value for shareholders as well. It is though in the Stewardship
theory that a steward will show pro-organizational behavior, which will be
based on the essence of self-service. So, it is assumed that a steward will not
make any business decisions, which are harmful to the organizations and their
shareholders. A debate can be made on this element of the theory, how they can
always make sure that a steward does not make any wrong or harmful decisions,
and he will always remain loyal to the core objectives of the organization.
Moreover, stewardship theory works with a concept of having relations with
external stakeholders, like a steward may make decisions to protect the
environment or make decisions for the betterment of the society
It is important to understand that
when there is a for-profit organization in any industry, its core objective is
to earn profits as much as possible. So, if a steward is handling the business
process and management of a for-profit organization, then all his efforts will
be leading to the sustainability and profit earning of the organization. For
instance, if a sales manager is taken as a steward for the organization, which
is a for-profit organization, the major role of the sales manager will be to
maximize sales and revenues so that the company can earn more profits. On the
other hand, if a production manager is taken as a steward, then his all focus
will be to look at the production process, making it sure that the production
facility is not facing any problems so that the supply of the product is kept
as per demand. However, when a steward works for a non-profit organization,
then his role will be totally different as compared to the steward working for
for-profit organization. In this role, the steward is not making decisions to
earn and maximize profits; rather he is working as someone, who believes in
social work. So, his role is very much identical to the role of a social
activist. The interest of society and public is the main concern for a steward working
in a non-profit organization
The Relationship of a Leader’s Values
and Beliefs to Effective Governance in Organizations
Every organization can meet its real
objectives if it is led by a leader, who knows his job. A leader has to be
someone, who has the essence of great values and beliefs in his leadership
style so that he can manage all kind situations, challenges, and changes.
Corporate governance cannot be achieved without the help of effective leadership.
The leader is the one, who sets the roadmap of success for an organization, so
a leader should have a different quality in his style, which is critical to
achieving the goals and objectives of any organization. For instance, one good
value of the leader is its ability to motivate and encourage its followers. A
leader must inspire its subordinates in different ways so they take ownership
of their work, and make every best possible effort to reach organizational
goals. A leader should be someone, who has the ability to manage diversity in
its team, without discriminating with anyone. Another important quality of a
leader to achieve great governance is his ability to have competency in his
leadership style along with flexibility. Moreover, a leader should be someone,
who has a creative mind with having a broader vision, which also inspires its
followers to think in broader terms
Conclusion of Seminal Theories of Governance and
Stewardship in Organizational Effectiveness
Looking at both the concepts of governance
and stewardship, it is evident that both concepts are critical for the
governance, as well as, organizational effectiveness. It was also found that
both concepts are related to each other in so many ways. It was also found that
regardless nature of the organization, the role of leaders is always critical
in any given situation. They are the ones, who drive the strategic roadmap, and
if leaders have great values and beliefs in their leadership style, then they
can achieve great governance in their organizations. The role of leaders is
critical for the effectiveness of any kind of organization.
References of
Seminal Theories of Governance and Stewardship in Organizational Effectiveness
Bonazzi, L., & Islam, S. M. (2007). Agency
theory and corporate governance: A study of the effectiveness of board in
their monitoring of the CEO. Journal of Modelling in Management , 2
(1), 7-23.
Capasso, A. (2004). STAKEHOLDER THEORY AND CORPORATE GOVERNANCE: THE R
OLE OF INTANGIBLE ASSETS. SSRN Electronic Journal , 1-24.
Contrafatto, M. (2014). Stewardship Theory: Approaches and Perspectives.
Accountability and Social Accounting for Social and Non-Profit Organizations
, 17, 177-196.
Heath, J., & Norman, W. (2004). Stakeholder Theory, Corporate
Governance and Public Management: What Can the History of State-Run
Enterprises Teach Us in the Post-Enron Era? Journal of Business Ethics
, 53 (3), 247-265.
Hernandez, M. (2008). Promoting Stewardship Behavior in Organizations: A
Leadership Model. Journal of Business Ethics , 80 (1), 121-128.
Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource
Dependence Theory: A Review. Journal of Management , 35 (6).
Shapira, Z. (2004). Governance in Organizations: A Cognitive
Perspective. 4 (1-2), 53–67.
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.
Tiller, S. R. (2011). Effective Business Governance. Leadership and
Management in Engineering , 11 (3).
Wilson, K. R. (2016). Steward Leadership in the Nonprofit Organization. InterVarsity Press.
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