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

Which governance arrangement is most consistent with stewardship theory?

Combining the CEO and chairperson roles fits stewardship theory because it gives a trustworthy manager unified authority and empowerment. Separation of roles, heavy monitoring and share-based incentive alignment are agency-theory mechanisms designed to control self-interested managers.

  1. ACombining the roles of CEO and board chairperson to give the manager unified authority and empowermentCorrect
  2. BSeparating the CEO and chairperson roles to ensure independent oversight
  3. CLinking a large part of the manager's pay to share-price options to align interests
  4. DAppointing auditors to check every managerial decision in advance

Explanation

Stewardship theory favours empowering trustworthy managers, so a combined CEO-chair role giving clear authority fits. The other options reflect agency theory's emphasis on control, independence and incentive alignment.

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