Part Three
Chapter 8 Discussion
9.2 Stewards not Agents?
9.2.2 Differences in Assumptions Between Agency and Stewardship Theories
The differences between the assumptions of agency and stewardship theories can be summarised as such.
Assumptions about Individuals
The fundamental difference between the theories is their assumptions about individuals. Agency theory assumes individuals are rooted in economic rationality.
Individuals base their decisions and actions on maximising their resources. As Davis et al (1997) notes, given a choice the agent or principal is assumed to choose the option that increases his or her individual utility. This assumption has been developed from the last 200 years of economic research. It is also the basis of the
‘agency problem’; that is, when the interests of the principal and agent do not align and an increase in one’s utility is at the expense of the other.
A body of sociology and psychology literature has challenged this view as too simplistic. Work in 1960s and 70s by McGregor (1960), Maslow (1970) and Argyris (1973) developed an alternative model – the self-actualising individual – based on the view that humans have a need to grow beyond their current state and reach higher levels of achievement. Individuals will seek higher level and non-individualistic goals, such as contributing to an organisation’s success. They will achieve personal fulfilment in doing so. Individuals unable to express their aspirations will become frustrated. This can be seen as a theoretical basis of modern stewardship theory (Davis et al., 1997).
An individual is assumed by stewardship theory to display pro-organisational, collective behaviours. Given a choice between self-serving and co-operative behaviours, the steward will choose co-operative behaviours that serve the organisation. Such behaviours are perceived to lead to organisational success and contributing to organisational success is perceived by the steward as generating great personal benefit (Davis et al., 1997).
Motivation
Agency theory focuses on extrinsic rewards: tangible, exchangeable commodities that have a market value. The aim of such rewards is to control the agent’s behaviour. Such is the central objective of agency theory: imposing controls on
agents in order to keep their self-serving behaviour in check (Jenkins and Meckling, 1976).
Stewardship theory focuses on intrinsic, intangible rewards: those not easily quantified such as opportunities for growth, achievement, affiliation and self- actualisation. The aim of such rewards is to keep the steward motivated. Motivated stewards will maximise their performance and work towards organisational goals (Davis et al., 1997).
In contrast to agency theory, control is not central to stewardship theory. Indeed, Block (1996) argues that the autonomy of stewards should be extended as much as possible as they can be trusted to work in the best interests of the organisation. Few organisational resources should be spent on monitoring the work of stewards.
Identification
Stewards have a strong identification with their organisation’s mission and values.
Achievement of organisational goals brings satisfaction for stewards. Self-serving agents, in contrast, do not identify with their organisation’s missions and any issues that their organisation may face. They seek to avoid blame and to avoid having to accept responsibility. They most closely identify with their own needs (Davis et al., 1997).
Use of Power
Using a widely cited typology of power bases, Davis and colleagues argue that there are two main types of power: institutional (vested in principal by virtue of their position in the organisation); and personal (developed through the context of an inter-personal relationship). They argue that agency theory adopts notions of institutional power by prioritising incentive systems and the importance placed on recognising the authority of the principal. Stewardship theory relies on personal power (Davis et al., 1997).
Sundaramurthy and Lewis (2003) summarise the differences in the two theories as control and collaboration. Agency theory stresses control: curbing human
limitations through discipline, value of extrinsic motivation, and external monitoring.
Stewardship theory stresses collaboration: collective orientations, tapping into the individual’s aspirations and intrinsic motivations, and the importance of service (Sundaramurthy and Lewis, 2003).
The differences are summarised in Table 9.1:
Agency Theory – Control Stewardship Theory – Collaboration Focus on contractual relationships where the
goals of principals and agents are not aligned
Focus on long term relationships where the goals of principals and stewards are aligned Assumes agents will shirk: act opportunistically
to achieve personal needs
Assumes stewards will work to achieve shared goals as the way to fulfil their personal needs Agents motivated by extrinsic rewards, usually
personal remuneration
Stewards motivated by intrinsic rewards such as achieving the organisation’s mission
Agents working for their own self interest Stewards strongly identify with organisations’
mission and purpose Agents controlled by institutional structures:
hierarchies, reward systems
Stewards controlled by personal relationships
Table 9.1: Differences between Agency and Stewardship Theory 9.2.3 Stewardship Theory and Soft Accountability
Making different predictions about how people will behave leads stewardship theorists to alternative conclusions about accountability, as against those proposed by agency theory. People are assumed to want to work for the organisation’s goals.
They should therefore be given the discretion to do so. Localised decision-making is proposed as important, as are longer-term and qualitative measures, to ensure people can know if they are making a positive difference (Block, 1996).
Accountability, it is argued, develops from parties sharing the same goal. When this occurs an internal sense of responsibility for achieving the goal develops. As the parties are assumed to have similar goals, and incentives aligned to achieve these shared goals, principals are able to step back from the details of the relationship and focus on providing strategic direction for their agents. As principals are freed from much of the often costly and time-intensive process of monitoring agents, they can, for example, invest more time in researching what services should be delivered.
They can also use the time saved from monitoring to develop measures which map the outcomes of the service provided.
Agents are also accorded more discretion. This may, for example, include the ability to make decisions about how services are delivered. Agents, given their assumed interest in the success of the organisation and the services it delivers, will also co- operate in the process of identifying outcomes and measures.
Micro-management and heavily specified contracts are unwarranted, as there is agreement on the broad direction (Cornforth, 2003b). Soft accountability mechanisms, such as professional licensing, codes of ethics and peer review, are seen as more effective than hard ones (Dicke, 2002).
Fry (1995) argues that the adoption of soft accountability mechanisms will make voluntary organisations more accountable to stakeholders than they currently are.
Organisation members will ensure they behave in a manner consistent with achieving the organisations’ goals and will judge themselves and be judged by their peers for doing so. Hard accountability mechanisms only measure what tangible work has been completed. Soft accountability mechanisms cover not only the tangible work completed but also the way the work was undertaken (how people chose to act).
They are therefore, he suggests, more far reaching than hard accountability mechanisms.
9.2.4 Stewardship Theory Applied to the Government–Voluntary Organisation