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

Under stewardship theory, which board structure is considered most suitable for enabling a manager to act effectively as a steward?

Stewardship theory prefers combining the chairman and CEO roles with a board dominated by insiders. This gives unity of direction and clear authority, letting trusted managers decide quickly. Separation of roles and outsider-dominated boards are agency-theory remedies based on distrust of managers.

  1. ASeparation of the roles of chairman and chief executive, with an outsider-dominated board
  2. BCombination of the roles of chairman and CEO, with a board having a majority of insidersCorrect
  3. CBoard made up entirely of independent shareholders' nominees
  4. DBoard with no executive directors to ensure strict supervision

Explanation

Stewardship theory favours unity of command, so one person holding both chairman and CEO roles and an insider-heavy board gives clear authority and quick decisions. Separation of roles with outsider dominance is the agency-theory prescription, since it stresses independent monitoring.

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