Formación del capital humano 50

Stewardship theory takes a different approach to agency theory in that the former sees top management and executives as stewards for shareholders. In other words, stewardship theory sees no conflict between agents and shareholders, and instead sees stewards taking a genuine interest in protecting the interests of owners and shareholders. The motivation of

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top management and executives is to promote the wellbeing of the organisation, identifying with it more on the basis of duty than personal self-interest. Stewards see the success of the organisation as conferring independence on them, as shareholders come to trust them more. Managers and executives, according to stewardship theory, look after shareholders’ interests and effectively control the organisation, which empowers them to maximise the profits of the organisation (Abdullah and Valentine, 2009).

Whereas agency theory holds that outside and independent directors provide the best security for organisations and better corporate performance, stewardship theory sees corporate performance being superior when there is a dominance of inside directors (Letting et al., 2012). The rationale for this position is that inside-dominated boards provide greater depth of knowledge, greater access to current information that could benefit the operation of the firm, more technical expertise and greater commitment to the organisat io n (Letting et al, 2012).

The major distinction between agency theory and stewardship theory is that the former sees the separation of management (CEO) from chairman of the board as important for maximising the interests of the shareholder, while stewardship theory sees the maximisation of the shareholder as incumbent about the duality of the role of CEO and chairman of the board (Donaldson and Davis, 1991). The evidence that Donaldson and Davis provide for seeing stewardship theory as advantageous is that their study showed that shareholder returns or organisational performance were greater with CEO duality, which supports stewardship theory. But they also point to the study by Rechner and Dalton (1991), which also took a stewardship approach, but found the opposite, thereby supporting the agency theory (Donaldson & Davis, 1991). To Donaldson and Davis (1991), these contradictions in findings only serve to highlight the dangers of using agency theory with the assumptions of self-interested managers and conflict of interests, as the CEO duality could work well.

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3.2.2.1Application of stewardship theory to CG and risk-taking

First, in stewardship theory, where the role of the good steward is that of looking out for the well-being of the shareholders and owners, there is no place for the dishonest manager as found in agency theory, for the role of the manager in stewardship theory would be to increase the shareholder wealth. Consequently, there would be less systemic risk in stewardship theory that in agency theory. As Aguilera, Gospel and Jackson (2007) point out, stewardship theory has removed the assumption of the behaviour of managers, showing the managers as good stewards with very few situations involving conflict of interests arising.

Second, application of stewardship theory to risk-taking will show the directors of the organisation as identifying with the organisation, and seeing the success of the organisat io n as the same as their success (Clarke, 2007). This behaviour demonstrates that there is little risk associated with directors who see themselves as stewards of their organisat io n. Therefore, in this setting, shareholders would see their wealth as very likely to be maximised, since the problem that is often encountered in the principal-agency relations hip is missing in stewardship theory (Abdullah & Valentine, 2009).

3.2.2.2Application of stewardship theory to CG and credit ratings

First, in terms of credit ratings, one would expect that since shareholders have great trust in a manager, and since the manager, according to this theory, is working to improve corporate wealth, then it is likely that credit ratings would also be high. This would be supported by the fact that shareholders are pleased with the organisation’s performance and with the wealth they are accruing from their investment. Good performance is associated with higher credit ratings (Elbannan, 2009).

Second, it was shown that stronger internal control was also associated with higher credit ratings. Firms that have greater internal control would be able to make good decisions about

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managing their operations (Elbannan, 2009). These firms would be different from firms that have speculative-grade rating, that are smaller size, and that have lower profitabilit y (Elbannan, 2009). As noted, firms that have weak internal control also have “lower cash flows from operating activities, net losses in the current and prior fiscal year, higher income variability and higher leverage than firms compared to firm with high-quality controls” (Elbannan, 2009, p. 127).

Third, there would be less cost and therefore higher credit ratings associated with a firm, where managers take the stewardship approach, because there would be less need for the same stringent corporate governance mechanisms that would be required from firms viewed under agency theory.

3.2.2.3Application of stewardship theory to CG and cost of capital

First, one would expect that under stewardship theory the cost of capital may be relative ly low. This may be the case since the manager in stewardship theory, unlike the manager in agency theory, would not be highly prone to investment, but would ensure that all the information indicates that it is the right time to invest. Therefore, there would very likely be a more conservative approach to investment under stewardship theory, and could lead to lower costs of capital and be a higher valuation of the organisation.

Second, shareholders would also not incur additional costs associated with monitoring the organisation, if it is recognised that the organisation is based on a stewardship model. With greater trust in their leaders and directors, and realising that the purely selfish aims of the agent are missing from the leaders operating under stewardship theory, shareholders would not incur as many costs, and directors would see collaborating with the shareholders as being useful to achieve lower costs and greater shareholder wealth (Davis, Schoorman, & Donaldson, 1997).

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