Comparing Agency Theory and Stewardship Theory

Agency theory is created on the premise that one person authorizing another to act on their behalf does not take away the self-interests of the individuals. As such, there is a level of risk and differences in goals between the two. The person to whom authority is delegated (the agent) must maximize the principal’s investment in exchange for an incentive like a fee, salary, or what they may have agreed upon. The agency theory views the motivation to work and deliver as an external factor that has to originate from a person other than the agent. Under the circumstances of the agency theory, managers must be kept under watch and supervision to ensure they do not reduce the value of investment entrusted on them. Nevertheless, not all scholars believe in that school of thought. Stewardship theory is an alternative philosophy based on the premise that most managers are highly responsible for the assets left under their watch, and require no supervision to do the right thing.

In agreeing with the stewardship theory, managers possess an intrinsic motivation that makes them perform their duties diligently. At the time one becomes a manager; the individual possesses great potential to lead, and could be an investor in their own right. As such, aligning subordinates as stewards, other than agents, helps in configuring their goals in line with those of the principles. They are intrinsically compelled to work towards achieving similar goals to their principles, because they figure themselves out as future principals. Through the stewardship theory, managers are modelled as better leaders than they configured in the agency theory. Stewardship theory is adopted to inculcate a culture of intrinsic motivation, which entrusts assets on managers like they won them. The feeling of appreciation that they get from this arrangement drives them to perform better in their roles.

The criticism of agency theory is merited; even though there is not a single theory without its flaws and weaknesses. Each of the theories has a stretch limit that they cannot go beyond. Importantly, management should be in a position to integrate the positives of both agency and stewardship theories. In the criticism of the agency theory, agent managers who conduct employee appraisals are more likely to realize negative outcomes in the firm performance. Therefore, one would rather be using the stewardship theory in firm management than the agency theory.