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

Under stewardship theory, which board arrangement is considered most appropriate for a company such as Shreeram Foods Ltd?

Stewardship theory favours combining the CEO and chairman roles, giving unified command and clear authority. Since managers are trusted to act in the owners' interest, empowering them improves decisions. Separating the roles and relying on outside monitors is the agency-theory approach.

  1. AStrict separation of the roles of CEO and board chairman to curb managerial power
  2. BA board dominated by outside directors to monitor the executives
  3. CCombining the CEO and chairman roles to give unified command and clear authorityCorrect
  4. DLinking all executive pay strictly to short-term share price movements

Explanation

Stewardship theorists argue that CEO duality and insider-led boards give unity of direction and empower trusted managers. Separation and outsider dominance are agency-theory prescriptions, so option A is wrong.

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