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

A company's board chair is also its CEO, and the board has few outside directors. Which statement best explains how stewardship theory would view this arrangement?

Stewardship theory regards a combined chair-and-CEO role as acceptable or even beneficial, because unified leadership gives clear authority and faster decisions by a trusted steward. Agency theory, in contrast, prefers separation of roles and independent directors to reduce agency costs.

  1. AIt is harmful, since agency costs are maximised when the roles are combined
  2. BIt is acceptable or beneficial, since unified leadership gives clear authority and quick decisions by a trusted stewardCorrect
  3. CIt is illegal for any company under stewardship theory
  4. DIt is irrelevant, since stewardship theory ignores board structure

Explanation

Stewardship theory favours CEO duality and inside directors because a trusted steward with unified command can act quickly and effectively. Option A states the agency theory view, which prefers independent boards and separate roles. Stewardship theory does discuss board structure, so D is wrong.

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