1. Introduction
With the pervasion of globalisation and the diversity of economic relationships, the corporate governance has become a vital issue in operating organisations in the flexible and active environment. However, corporate governance is approached by various theoretical concepts, among them, the agency theory and stewardship theory have become dominant. The adaptation of these theories in designing of corporate governance systems depends on their particular characteristics which influence the productivity and the operation of organisations. That is the reason why the in-depth comprehension about these theories is essential. To achieve that, this research will focus on distinguishing between agency theory and stewardship theory based on their theoretical basics, performance criterion, motivation, the role and position of chief executive officers (CEO), as well as, control mechanism.
2. The distinction between …show more content…
In agency theory, Davis et al. (1997) states that the owners use economic demands, which are known as extrinsic rewards and can be tangible, exchangeable, to motivate their agents. For example, they could be medical insurance, 401k savings or retirement plans. In the other words, agency theory adapts the quantifiable value to stimulate agents to work more efficiently and maximise shareholders’ utility. In contrast, stewardship theory focuses on higher values (Grundei, 2008), non-financial motivations to inspire managers to improve performance and achieve the goal of organizations. These values relate to intrinsic rewards which may be opportunities for promotion, development, affiliation, and self-actualization, to the extent, stewards try to gain the intrinsic satisfaction through successfully performing inherently challenging work, conduct their duties, thereby they achieve recognition from peers and bosses (McClelland, 1961; Herzberg et al.,
With the pervasion of globalisation and the diversity of economic relationships, the corporate governance has become a vital issue in operating organisations in the flexible and active environment. However, corporate governance is approached by various theoretical concepts, among them, the agency theory and stewardship theory have become dominant. The adaptation of these theories in designing of corporate governance systems depends on their particular characteristics which influence the productivity and the operation of organisations. That is the reason why the in-depth comprehension about these theories is essential. To achieve that, this research will focus on distinguishing between agency theory and stewardship theory based on their theoretical basics, performance criterion, motivation, the role and position of chief executive officers (CEO), as well as, control mechanism.
2. The distinction between …show more content…
In agency theory, Davis et al. (1997) states that the owners use economic demands, which are known as extrinsic rewards and can be tangible, exchangeable, to motivate their agents. For example, they could be medical insurance, 401k savings or retirement plans. In the other words, agency theory adapts the quantifiable value to stimulate agents to work more efficiently and maximise shareholders’ utility. In contrast, stewardship theory focuses on higher values (Grundei, 2008), non-financial motivations to inspire managers to improve performance and achieve the goal of organizations. These values relate to intrinsic rewards which may be opportunities for promotion, development, affiliation, and self-actualization, to the extent, stewards try to gain the intrinsic satisfaction through successfully performing inherently challenging work, conduct their duties, thereby they achieve recognition from peers and bosses (McClelland, 1961; Herzberg et al.,