Skip to content

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

A promoter-family company is considering two approaches for its professional manager: (I) heavy performance-linked bonuses with strict audits, or (II) giving wide autonomy, long-term responsibility and recognition. Which pairing of approach and underlying theory is correct?

Approach I, with performance bonuses and strict audits, rests on agency theory because it assumes managers need external control. Approach II, with autonomy, responsibility and recognition, rests on stewardship theory because it relies on trust and intrinsic motivation of managers.

  1. AI is based on agency theory; II is based on stewardship theoryCorrect
  2. BI is based on stewardship theory; II is based on agency theory
  3. CBoth I and II are based on agency theory
  4. DBoth I and II are based on stewardship theory

Explanation

Bonuses and audits assume opportunism needing extrinsic control and alignment, which is agency theory. Autonomy and recognition rely on intrinsic motivation and trust, which is stewardship theory. Reversing them confuses the control and trust orientations.

Did you get it right without looking?

One question tells you little. A timed set on Stewardship Theory and Agency Theory of Management shows your real accuracy, how long you take and where you lose marks.

Practise Stewardship Theory and Agency Theory of ManagementFree diagnostic mock

More Stewardship Theory and Agency Theory of Management questions