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

Which statement about the stewardship theory view of the principal-manager relationship is correct?

In stewardship theory, a manager's utility is maximised by pursuing organisational objectives, so pro-organisational, collective behaviour is more valuable to the steward than self-serving behaviour. Hence interests align naturally, unlike agency theory, which assumes conflict and individual self-interest.

  1. AConflict of interest is inevitable, so owners must incur agency costs to align interests
  2. BUtility of the manager is maximised by pursuing personal goals at the owners' expense
  3. CThe manager's utility is maximised by pursuing organisational objectives, so pro-organisational behaviour has higher utility than self-serving behaviourCorrect
  4. DManagers prefer individual achievement over collective achievement

Explanation

Stewardship theory holds that a steward's utility function is maximised by pro-organisational, collectivist behaviour, as the steward sees organisational success as personal success. The other options reflect agency theory's assumption of divergent interests and individualism.

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