Fundamentals of Business Economics and Management · Stewardship Theory and Agency Theory of Management

Stewardship Theory vs Agency Theory: Key Differences

Updated 10 October 2026 · Fact-checked

Agency theory assumes managers (agents) are self-interested and may act against owners (principals), so owners use monitoring, contracts and incentives. Stewardship theory assumes managers are trustworthy and motivated to serve the organisation, so owners give autonomy and trust. The core difference is the view of human behaviour.

Understand Stewardship Theory vs Agency Theory

Both theories answer one question: how should owners deal with the managers who run their business? In a company, shareholders own it but managers run it. The two theories give opposite answers because they start from different views of people.

Agency theory says the owner (principal) hires a manager (agent) to act on the owner's behalf. It assumes the agent is self-interested and wants to maximise personal benefit, such as salary, perks and job security. The owner's and manager's interests can differ, and the manager usually knows more than the owner. So the owner must control the manager through monitoring, audits, contracts and incentives like bonuses or share options. The cost of this control is called agency cost.

Stewardship theory says managers are stewards. They want to do a good job, take pride in the organisation and find satisfaction in its success. Their motives are intrinsic: achievement, recognition, responsibility and belonging. Their interests line up with the owner's, so heavy control is unnecessary and can even hurt motivation. The owner should give authority, trust and freedom.

So the two theories differ on human nature (self-serving vs collective-minded), motivation (extrinsic vs intrinsic), control (tight vs loose), trust (low vs high) and the owner-manager relationship (conflict of interest vs partnership). Agency theory is linked with economics and finance. Stewardship theory is linked with psychology and sociology.

Neither theory is always right. Agency theory fits situations with weak trust or widely scattered owners. Stewardship theory fits situations with committed, long-serving managers, such as a family business led by a trusted professional. Exams usually test the contrast, so learn the pairs.

Key formulas to remember

Agency theory in one line: Self-interested agent + conflict of interest → monitoring, incentives and contracts; Control-based. Cost of control is agency cost.
Stewardship theory in one line: Trustworthy steward + aligned interests → empowerment, autonomy and trust; Trust-based. Motivation is intrinsic.
Comparison pairs to remember: Human nature: self-serving vs collective-minded | Motivation: extrinsic vs intrinsic | Control: tight vs loose | Trust: low vs high | Relationship: principal-agent conflict vs partnership; Always keep agency first and stewardship second so you do not swap them.
Agency problem: Agency problem = divergence between owner's goals and manager's goals; Arises from conflict of interest and information gap.

How to solve Stewardship Theory vs Agency Theory questions

Use this method for any question that asks you to compare, identify or apply the two theories.

1Read the question and mark the key behaviour words: monitor, control, incentive, trust, empower, autonomy, loyalty.
2Decide the view of the manager in the statement: self-interested (agency) or committed and trustworthy (stewardship).
3Check motivation: money, bonus or penalty points to agency; achievement, recognition and pride point to stewardship.
4Check control: audits, contracts and supervision mean agency; freedom, authority and delegation mean stewardship.
5Check the relationship: conflict of interest means agency; shared goals and partnership means stewardship.
6For a comparison question, write point-by-point in pairs, agency first and then stewardship.
7Re-read the options and confirm that no part of your chosen answer mixes the two theories.

Quickest way: Trust or control test

When to use it: Use for one-line MCQs where a statement must be matched to a theory.

Ask: does this statement assume managers must be watched, or can be trusted?
Watched, monitored, rewarded or penalised: choose agency theory.
Trusted, empowered, intrinsically motivated: choose stewardship theory.
If an option mixes both ideas, eliminate it.
Eliminate any option that says agency theory has high trust or stewardship theory needs strict monitoring.

Common mistakes in Stewardship Theory vs Agency Theory

Swapping the two theories and saying stewardship theory uses strict monitoring.
The words sound similar and students memorise without linking each to its view of people.
Fix: Link steward with trust and agent with control. Use the trust or control test every time.
Saying agency theory assumes managers are always dishonest.
Students overstate 'self-interested'.
Fix: Say agency theory assumes managers may put their own interests first, so safeguards are needed.
Writing that stewardship theory needs no control at all.
Confusing low control with zero control.
Fix: Write that stewardship theory relies mainly on trust and empowerment, with less need for tight monitoring.
Calling agency cost a feature of stewardship theory.
Agency cost is remembered as a general business cost.
Fix: Agency cost (monitoring, bonding and residual loss) belongs to agency theory, which creates the need for control.
Mixing up motivation: saying agents are motivated by intrinsic rewards.
Students recall both lists but not which belongs where.
Fix: Agency: extrinsic (pay, bonus). Stewardship: intrinsic (achievement, recognition).

Worked examples

Example 1

A company owner hires a manager and links his bonus to annual profit. She also asks for monthly audits of his expense claims. Which theory does this approach reflect, and why?

Show the solution

Identify the behaviour words: bonus linked to profit and monthly audits.
A bonus is an extrinsic incentive meant to align the manager's interest with the owner's.
Audits are monitoring, which assumes the manager may not always act in the owner's interest.
Both features rest on low trust and a need for control.

Answer: Agency theory, because it relies on incentives and monitoring to control a self-interested agent.

Example 2

Which of the following best describes stewardship theory? (A) Managers must be monitored closely because they pursue personal gain (B) Managers are motivated by achievement and responsibility, so they should be given autonomy (C) Owners and managers always have conflicting goals (D) Managers work only for monetary rewards

Show the solution

Option A describes the agency view: close monitoring and personal gain.
Option C describes the agency view: conflict of goals.
Option D describes the agency view: extrinsic money motive.
Option B shows intrinsic motivation and autonomy, which are stewardship ideas.

Answer: Option B

Exam tips

Learn the comparison as five pairs: human nature, motivation, control, trust and relationship. Most MCQs test one pair.
Use keywords as triggers: monitoring, incentives and conflict mean agency; trust, empowerment and intrinsic motivation mean stewardship.
Watch for options that mix both theories. Eliminate them first.
No negative marking, so always attempt every question. Narrow to two options with the trust or control test and pick one.

Practice questions from Stewardship Theory and Agency Theory of Management

Stewardship Theory vs Agency Theory in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Stewardship Theory vs Agency Theory: frequently asked questions

What is the main difference between stewardship theory and agency theory?

Agency theory sees managers as self-interested agents who must be controlled. Stewardship theory sees managers as trustworthy stewards who should be empowered. This difference in view shapes motivation, control and the owner-manager relationship.

Which theory stresses intrinsic motivation?

Stewardship theory. It says managers are driven by achievement, recognition and a sense of responsibility rather than only by pay or bonus. Agency theory relies mainly on extrinsic rewards.

Is agency theory or stewardship theory better?

Neither is always better. Agency theory suits cases where trust is weak or owners are far from management. Stewardship theory suits cases with committed managers and shared goals.

How should I write the comparison in an exam?

Make two columns or point-by-point pairs on human nature, motivation, control, trust and relationship. Always keep agency theory first and stewardship theory second. Since the exam is objective, focus on recognising each point quickly.