Are managers agents or stewards of their principals?: Logic, critique, and reconciliation of two conflicting theories of corporate governance

• Published in: Journal für Betriebswirtschaft 2008, Vol.58 (3), p.141-166
• Main Author: Grundei, Jens
• Format: Article
• Language: English
• Subjects: Accounting/Auditing; Business and Management; Innovation/Technology Management; International Business; State-of-the-Art-Artikel
• ISSN: 0344-9327; 1614-631X
• DOI: 10.1007/s11301-008-0038-2

Agency theory has been the dominant framework for a theoretical conceptualization of corporate governance. According to this view, the governance problem of uncertainty about managerial behavior can be solved by assuming opportunistic behavior and setting up governance mechanisms to curtail opportunism. However, the adequacy of agency theory has recently been challenged because distrust-based governance mechanisms that are in line with the theory’s recommendations have been ineffective to avoid managerial misconduct. Moreover, agency-based control and incentive systems have even been accused of being harmful. Stewardship theory has been proposed as an alternative approach. Building on a contrasting assumption about managerial behavior, this approach recommends trust-based governance designs that may, however, result in a one-sided and potentially disadvantageous system, too. On the basis of an in-depth analysis and critique of both theories this paper explores ways to either separate or combine the rival approaches. Due to shortcomings of these strategies a new perspective for the design of corporate governance systems is presented that opens the possibility of overcoming the theoretical tension.