COMPARISON FAMILY BUSINESS THEORIES: SYSTEM THEORY, AGENCY THEORY, RESOURCES BASED THEORY and STEWARDSHIP THEORY Part 3
4. Stewardship theory:
Stewardship theory is a framework which argues that people are intrinsically motivated to work for others or for organizations to accomplish the tasks and responsibilities with which they have been entrusted. Under the stewardship theory, company executives protect the interests of the owners or shareholders and make decisions on their behalf. Their sole objective is to create and maintain a successful organization so the shareholders prosper. Firms that embrace stewardship place the CEO and Chairman responsibilities under one executive, with a board comprised mostly of in-house members. This allows for intimate knowledge of organizational operation and a deep commitment to success.
The stewardship theory of governance has a clear objective of shareholder satisfaction. Having a single leader creates one channel to communicate business needs to the shareholders and the shareholders’ needs to the business. This also avoids confusion as to who is in charge when a company needs to weather a storm. Stewardship governance requires that a CEO be trustworthy and willing to put personal gains aside for the good of the organization.
Stewardship models may include environmental concerns, where a company believes it should operate with as little impact as possible on the earth. Other companies may champion human or animal rights, refraining from using products that are made in sweatshops or tested on live subjects. Still others may honor the owner’s religious beliefs that show them in the form of servant leadership. These models tend to be subjective, with management determining the boundary between socially responsible or irresponsible behavior.
Conclusion
The distinction between theories is found in the behavioral assumptions and the structural prescriptions. From a behavioral perspective, agency theory describes behavior rooted in an economic model of man; agent behavior will be based on self-interest and may conflict with the principal’s interest. From a structural perspective, agency theory prescribes governance mechanisms that control and monitor agents in order to opportunistic behavior and better align the goals of the principal and agent. That is why in our opinion Agency Theory is the best option for the family business.
However, system theory, agency theory, resourced-based theory, and stewardship theories contain the essential elements of the family business theory. Each theory has predictive and explanatory power as shown in the descriptions of the what, how, and why. However, the question remains as to whether the theories are adequate and relevant when context is taken into consideration. In other words, are expansions necessary or boundary conditions or limitations apparent if the where is considered?
In conclusion, to choose which theory is the best option for the business we should consider these related aspects:
1. Have interrelated elements and structure. The elements of a system are the members of the family. Each element has characteristics; there are relationships between the elements; the relationships function in an interdependent manner. All of these create a structure, or the sum total of the interrelationships among the elements, including membership in a system and the boundary between the system and its environment.
To be continued..
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