Are managers agents or stewards of their principals?

• Published in: Management review quarterly 2008-09, Vol.58 (3), p.141-166
• Main Author: Grundei, Jens
• Format: Article
• Language: English
• Subjects: Agency theory; Corporate governance; Managers; Professional misconduct
• ISSN: 2198-1620; 2198-1639
• 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 byassuming opportunistic behavior and setting up governance mechanisms to curtail opportunism. However, theadequacy of agency theory has recently been challenged because distrust-based governance mechanisms thatare 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 theoryhas 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 potentiallydisadvantageous system, too. On the basis of an in-depth analysis and critique of both theories this paperexplores ways to either separate or combine the rival approaches. Due to shortcomings of these strategiesa new perspective for the design of corporate governance systems is presented that opens the possibilityof overcoming the theoretical tension.