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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Conceptual Framework of Corporate Governance

Arjun, the CEO of Sahyadri Foods Ltd, has no large shareholding. He declines a lucrative related-party deal for himself because he believes the company's success reflects his own success and his role is to serve the organisation. Which theory explains his behaviour, in contrast to the assumption of opportunism made by agency theory?

Stewardship theory explains his behaviour. It assumes managers are motivated to serve the organisation and see its success as their own, so they act as responsible stewards. This contrasts with agency theory, which assumes managers may act opportunistically and so need monitoring.

  1. AStewardship theory, where managers are motivated to act in the interest of the organisationCorrect
  2. BTransaction cost theory, where managers maximise personal gain
  3. CResource dependency theory, where boards avoid external links
  4. DPolitical theory, where the government appoints the CEO

Explanation

Stewardship theory assumes managers are intrinsically motivated to act as responsible stewards of the company's assets, finding satisfaction in organisational success. Agency theory assumes self-interest and opportunism, so it requires monitoring and incentives. Option B is wrong because transaction cost theory does not describe managers as stewards.

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