ACCA Strategic Professional · Strategic Business Leader · Agency
Dravik Ltd is a family-founded manufacturer. Its chief executive, Mr Osei, has led it for 25 years and is paid modestly, yet he regularly turns down personal perks, reinvests in staff training and says the company's legacy matters more than his pay. A consultant argues the board should reduce monitoring and give him greater autonomy. Which theory underpins the consultant's advice, and what does it imply?
The advice rests on stewardship theory. Mr Osei is intrinsically motivated and puts the organisation first, so the theory implies he performs best when trusted and given autonomy. Agency theory assumes self-interested agents and would instead call for greater monitoring and incentives, which is not suited here.
- AStewardship theory, implying that agents motivated by intrinsic goals perform best when trusted with empowermentCorrect
- BAgency theory, implying that tighter monitoring and incentives are needed to align his interests
- CStakeholder theory, implying that his duties are owed equally to all stakeholders by law
- DTransaction cost theory, implying that outsourcing his role would reduce costs
Explanation
Mr Osei acts for intrinsic reasons and in the organisation's interests, which matches stewardship theory. This theory suggests that heavy monitoring may undermine such managers and that empowerment improves performance. Traditional agency theory assumes self-interest and would prescribe more control, which is the opposite of the consultant's advice.
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