Conduct research in order to contrast agency theory and stewardship theory in corporate governance.

Unit 1 essay | Business & Finance homework help

Agency Theory:
Agency theory is a branch of economics and management science that deals with the problems arising from conflicts between principals and their agents. Principals are shareholders or owners, while agents are managers at an organization who act on behalf of principals. Agency theory postulates that there always exists a problem of agency costs due to the divergence between the goals of the principal and those of the agent. To solve this problem, it proposes various methods like monitoring, aligning incentives, setting performance objectives etc., which can be used by principals to reduce or eliminate agency costs and also ensure that their interests are served.

Stewardship Theory:
Stewardship theory is a concept in organizational behavior which states that effective managers have responsibility for both individual achievement (agency) as well as collective outcomes (stewardship). Stewardship theory argues that individuals should focus not only on furthering their own interests but also on increasing overall productivity for their organization. According to this view, employees should put organizational values before personal ones so as to create an environment in which all members share responsibilities for achieving collective goals. This implies that leaders should practice ethical behavior when making decisions in order to protect resources entrusted them by others. It also suggests that leaders need to be accountable for how resources are being used within organizations; they must take ownership and demonstrate commitment towards achieving long-term organizational success through sound practices rather than short-term gain through unethical activities such as fraud or abuse of power.