(a) Discuss the contrasting views of managerial motivation assumed in Agency Theory versus in Stewardship Theory. Which view do you regard as more realistic and why?
The agency theory assumes that agents that exist in businesses and act on behalf of people do so because they have to represent their clients. The fact is that the time may not be available for the clients who are businesses and individuals, and so they end up hiring the agents to act on their behalf. More so, the clients may not have the expertise or the requisite skills to engage their businesses and run the errands are required (Du Plessis et al., 2018, p. 11). As a result, agents are seen as the best individuals or companies to contract because they have the necessary skills, equipment, facilities and time to use in carrying out the tasks. The authority in making decisions concerning the responsibility under the contract is delegated to the agent, and the principal loses the power to handle the matter directly, letting the agent carry out all the duties. The discretion that the principal gives to the agent is broad, and it, therefore, becomes quite difficult to monitor the latter’s activities. The theory has been exceedingly helpful in organizations especially that have undertaken agency relationships. It has brought out some ease of work and positive results between managers, employees, and boards of management.
`Agency theory has been widely applied for it has brought about great results and allowed managers to achieve things that they would not have even imagined. This has made it more popular, and thus, it has gained more ground because it has improved the way supervisors and managers in organizations are being viewed. Corporate governance has assumed a cornerstone in the theory of agency because it is known that shareholders employ managers and delegate to them the mandate to oversee the investments made. Shareholders are usually more, and therefore they need to have a leader (Tricker, 2015, p. 45). As a result, they may employ one of them to take care of their interests by safeguarding their investment. However, the shareholders may not be having even one among them who can undertake such a job. They, therefore, employ an outsider, who comes in and manages their property because he has the expertise required. More so, the manager who comes in as just an employee is a third party who is neutral and therefore is entrusted to remain neutral, giving all the members equal benefit without any bias. This implies that the shareholders who take charge of all the duties regarding checking the conduct and discipline of the managers. The powers of the shareholders remain over the managers, and they can sack them whenever they feel that their investments are being threatened (Ramírez, and Tejada, 2018, p. 27).
Nevertheless, accountability becomes a problem because the monitoring that is done by shareholders is not economical and maybe at most times inconvenient. They may not have the required time that is necessary for them to do the controlling and therefore they end up not properly fulfilling their task. They find that there are a lot of impracticalities in the undertaking of the function of monitoring. Apart from the lack of time, there are costs associated with this task, and thus, accountability on the part of the managers becomes necessary. To help sort out this possible disadvantage, the shareholders hold a meeting and elect their representatives who are the board of directors. The board acts as the agent of the shareholders and therefore takes over the duty of overseeing and monitoring the executives of the organization (Soltani, and, Maupetit, 2015, p. 276). The main aim of the board is to protect the interest of their colleagues by controlling any possible misuse of the funds and reduce instances of mismanagement.
The view of this theory is that the agency will be in problems if the interests of both the two parties, the agent and the principle do not coincide. Therefore, the agent has to be controlled by the principal so that the interests of both actors match for the overall results to be positive. The concern of the agency theory is on the costs that are involved in the control process which is aimed at making sure that wastefulness is curtailed and the agents do not have the freedom to do the things the way they wish. They then have to adapt to the wishes of the principal and therefore the need for governance structures. Accountability burden is placed on the shoulders of the agents.
On the other hand, the stewardship theory does not dwell much on controlling and defeating the conflict between the agent and the principal. The stewardship theory stresses the importance of collaboration as well as corporation and does not look at the relationship economically. In this theory, the agents are allowed to go out of the way to act in the best interest of the company such that they achieve a collectivist utility. The agents are not expected to serve their benefits although the theory does not mind about them fostering their interests economically. The focus is general n the results, and this is why they are generally entrusted with all the resources needed and given all the freedom and discretion to undertake whatever they would see best in their eyes for the organizational
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