Assessment of relations between stewardship and stakeholder theory.

Filipovic, Davor ; Podrug, Najla ; Kristo, Mate 等

1. INTRODUCTION

Contemporary business environment is rapidly changing and forcing management and organizations in pursue for developing ethically responsible, innovative and profitable businesses. The goal of this paper is to theoretically indicate stewardship paradigm as competitive asset in terms of sustainable competitive advantage.

Sustainability is a strategic orientation of investment in social and natural environment for achieving sustainable growth and profitability of a company; therefore the goal is to achieve a win-win situation for all stakeholders by aligning the interests of company and society. Since different theories have different purposes and therefore different validity criteria and different implications, goal of the paper is to appraise stewardship theory in comparison to stakeholder theory which is general and comprehensive, but goes well beyond the descriptive observation that "organizations have stakeholders."

2. FUNDAMENTAL ASSUMPTIONS OF STEWARDSHIP THEORY AND PROPOSITIONS OF STAKEHOLDER THEORY

Stewardship theory is a theory that rejects the assumptions of agency theory (Davis et al, 1997). Stewardship theory has its roots in the socio-psychological model of human behavior, which assumes that manager's behavior is pro-organizational and collectivistic, achieving higher utility by serving a group (organization), than by satisfying personal goals (Tipuric, 2008).

Stewardship theory has emerged in the field of corporate governance as an alternative to agency theory, so it is understandable that the basic assumptions are defined distinctive to the agency theory assumptions. In the agency relation the emphasis is on building institutional and contractual mechanisms so that managers cannot achieve their own goals at the expense of the owner's goals, while in the stewardship relation, if it is successfully achieved, there are no such problems: the goals are shared, so the manager's activities are also in the organization's interest. Consequently, in the stewardship relation the agency problem of hidden information and hidden agent's actions (Arrow, 1985) becomes trivial and scientifically not interesting. In this sense, the primary difference between agency and stewardship theory lies in the mechanisms of risk management: agency theory promotes control mechanisms while stewardship theory promotes trust development (Davis; Schoorman, & Donaldon, 1997).

Stakeholder analysts argue that all individuals or groups with legitimate interests participating in an enterprise do so in order to obtain benefits and that there is no priority of one set of interests and benefits over another (Smith, 2003). Although stakeholder concepts have been applied in other settings (e.g., government agencies and social programs), these situations are fundamentally different, and simultaneous discussion of a variety of possible stakeholder relationships leads, to confusion rather than clarification (Donaldson & Preston, 1995). One of the central problems in the evolution of stakeholder theory has been confusion about its nature and purpose. For example, stakeholder theory has been used, either explicitly or implicitly, for descriptive purposes. Brenner and Cochran (1991) offered a "stakeholder theory of the firm" for "two purposes: to describe how organizations operate and to help predict organizational behavior." The stakeholder theory can be, and has been, presented and used in a number of ways that are quite distinct and involve very different methodologies, types of evidence, and criteria of appraisal.

The descriptive aspect of stakeholder theory reflects and explains past, present, and future states of affairs of corporations and their stakeholders. Simple description is common and desirable in the exploration of new areas and usually expands to generate explanatory and predictive propositions. Instrumental uses of stakeholder theory make a connection between stakeholder approaches and commonly desired objectives such as profitability, clearly implying that corporate managers must induce constructive contributions from their stakeholders to accomplish their own desired results, e.g., perpetuation of the organization, profitability, stability, growth (Jones, 1995). In normative uses, the correspondence between the theory and the observed facts of corporate life is not a significant issue, nor is the association between stakeholder management and conventional performance measures a critical test. Instead, a normative theory attempts to interpret the function of, and offer guidance about, the investor owned corporation on the basis of some underlying moral or philosophical principles. Although both normative and instrumental analyses may be "prescriptive", they rest on entirely different bases (Podrug, 2010).

3. COMPARISON OF STEWARDSHIP AND STAKEHOLDER THEORY

Distinctiveness among these theories in terms of manager's role, motivational model, use of information, rules' function, key values etc. is presented in table 2. Organizational goal, from stakeholder theory's perspective, is to balance profits with other objectives across all participants, while stewardship theory defines organizational goal in terms of creating longterm and achieving best interests for all. On managerial level, personal goal of steward is to achieve potential whereas manager from stakeholder theory's viewpoint honors relationships (Podrug, 2010).

Integrating stakeholder and organizational interest is focus of stakeholder theory; however stewardship theory's vision is to increase organizational wealth to serve all interests (Caldwell et al., 2006).

Stakeholder theory and stewardship theory idiosyncratically approach to employees, perceive their role and contribution.

According to stakeholder theory employees are stakeholders, but in reality their position is inferior to other stakeholders. In process of decision making employees experience that their interests are not consistently treated when compared to other stakeholders (McCall, 2002). If employees are involved in decision making process with repercussions concerning them as well, then they will almost certainly be controlled by formal mechanisms as in agency theory (Podrug, 2010).

In stewardship theory employees are valued as ends in themselves and their values and needs are respected. Employees are empowered owners and partners in creating wealth and are supervised in the best possible manner, while employees in stakeholder theory's perspective are stakeholders to whom a balance of benefits is guaranteed--but are often treated in contradiction to that rule (Lea, 2004).

To end with, distinction lies also in perception of the future. The corporation is able to benefit all stakeholders and the future is a function of balancing their needs in stakeholder theory, meanwhile in stewardship theory the corporation creates value for society and all stakeholders by maximizing long-term wealth creation.

4. CONCLUSION

Stewardship theory is still in its embryonic stage with a lot of open questions, but noticeably theory is compatible to stakeholder theory. Presented theoretical assumptions indicate that in reality, stewardship theory is consistent to stakeholder theory and upgrades stakeholder theory. Respect of interests, needs and expectations of diverse stakeholders is irreplaceable segment of business ethos, and therefore stewardship theory proposes optimal governing model in contemporary business environment.

5. REFERENCES

Andriof, J.; Waddock, S.; Husted, B. & Sutherland Radman S. (2002). Unfolding Stakeholder Thinking 1: Theory, Responsibility and Engagement, Greeleaf Publishing, 9781-874719-52-6, Sheffield

Arrow, K. J. (1985). Information Structure of the Firm. American Economic Review, Vol. 75, No. 2, pp. 303-307., ISSN: 0002-8282

Brenner, S. N. & Cochran. P. (1991). The staholder theory of the firm: Implications for business and society theory and research. Paper presented at the annual meeting of the International Association for Business and Society, Sundance, UT.

Caldwell, C.; Karri, R. & Vollmar, P. (2006) Principal Theory and Principle Theory: Ethical Governance from Follower's Perspective. Journal of Business Ethics, Vol. 66, pp. 217., ISSN: 1573-0697

Donaldson, T. & Preston, L. E. (1995). The Stakeholder Theory of the Corporation: Evidence and Implications. Academy of Management Review, Vol 20, pp. 65-91., ISSN: 0363-7425

Davis, J. H.; Schoorman, D. F. & Donaldson, L. (1997). Toward a Stewardship Theory of Management. Academy of Management Review, Vol. 22, No. 1, pp 20-47, ISSN: 0363-7425

Jones, T. M. (1995). Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics. Academy of Management Review, Vol. 20, No. 2, pp. 404-437., ISSN: 0363-7425

Lea, D. (2004). The Imperfect Nature of Corporate Responsibility of Stakeholders. Business Ethics Quarterly, Vol. 14, No. 2, pp. 201-217., ISSN: 1052-150X

Low, M. B. (1991). Stockholder vs. Stakeholder: How Managerial Attitudes Affect Goal Consensus Between Groups. Academy of Management Proceedings, pp. 336340., ISSN: 1558-9080

McCall, J. (2002). Leadership and Ethics: Corporate Accountability to Whom, for What, and by What Means?. Journal of Business Ethics, Vol. 38, No. 54, pp. 133-139., ISSN: 1573-0697

Podrug, N. (2010). Stewardship Relations Within Management Hierarchy in Large Croatian Companies. Doctoral dissertation. Faculty of economics and business Zagreb, Zagreb

Smith, H. J. (2003). The Shareholders vs. Stakeholders Debate. Sloan Management Review, Vol. 44, No. 4, pp. 85-90., ISSN: 1532-9194

Tipuric, D. (2008). Korporativno upravljanje. Sinergija, 9536895-07-02, Zagreb

Tab. 1. Fundamental assumptions of stewardship theory

managers as stewards

governance approach sociological and psychological

model of human collectivistic, pro-organizational,
behavior trustworthy

managers motivated by principal's objectives

manager's and converge
principal's interests

structures that facilitate and empower

owners' attitude risk propensity

principal-manager trust
relationship based on

Tab. 2. Distinctive assumptions of stakeholder and stewardship
theory

 Stakeholder theory Stewardship theory

manager's advocate of integrator of shared
role collective interests interests

manager's mediator steward
primary
function

motivational mixed model with self-actualizing
model mixed motivators model
 with intrinsic
 motivators

manager equity and virtues and values
motivation stakeholders and society

manager's high identification high identification
organizational and high in value and high in value
commitment commitment commitment

use of information identifies achieves synergies
 tradeoffs

basis of creating trusfairness integrity

rules' function clarify process define opportunity

key value balance authenticity

economic zero sum and variable sum
assumptions variable sum opportunities exist
 results may occur people are
 people are concerned collective self-
 actualizers

assumptions with equity and who achieve utility
about people fairness; utility through
 is measured organizational
 distributively achievement