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

Vishwas Pharma Ltd decides to give a trusted CEO wide discretion, combining the roles of chairman and CEO, reasoning that senior managers are motivated by achievement and want the company to succeed rather than by self-interest. Which theory supports this reasoning?

Stewardship theory supports this reasoning. It assumes managers are motivated by achievement and the company's success, not self-interest, so empowering them with unified leadership such as combined chairman and CEO roles is acceptable. Agency theory would instead favour separation of roles and tighter monitoring.

  1. AAgency theory
  2. BStewardship theoryCorrect
  3. CTransaction cost theory
  4. DPolitical theory of governance

Explanation

Stewardship theory assumes managers are collective-minded stewards who find satisfaction in organisational success, so unified leadership and empowerment suit them. Agency theory would take the opposite view and separate the roles to enable monitoring.

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