Stewardship theory and entrepreneurship
Stewardship Theory: Are Managers Selfish or Selfless?
For decades, economics was dominated by a cynical view of human nature known as Agency Theory. In the late 1980s, Lex Donaldson and James Davis introduced a compelling alternative: Stewardship Theory.
This theory challenged the prevailing assumption that managers are inherently opportunistic, proposing instead that they can be trustworthy stewards motivated by the greater good.
The Great Debate: Agency vs. Stewardship
To understand Stewardship, you must first understand what it is reacting against.
1. Agency Theory (The Cynical View)
Rooted in economics, this theory assumes that agents (managers/entrepreneurs) are self-interested and opportunistic. The relationship between the "Principal" (investor) and the "Agent" (manager) is one of inevitable conflict.
- The Problem: Managers will prioritize their own wealth over the shareholder's returns.
- The Solution: Control mechanisms. Stock-based compensation to align interests, and strict monitoring boards to prevent theft or laziness.
2. Stewardship Theory (The Optimistic View)
By contrast, Donaldson and Davis proposed that managers are not merely self-serving actors. According to this theory, individuals derive greater utility from pro-social behavior—actions that benefit the organization—than from narrow self-interest.
- The Motivation: A steward thrives when the organization succeeds. Their ego is tied to the collective victory, not individual enrichment.
- The Solution: Empowerment. Rather than investing in costly monitoring systems, organizations should grant stewards autonomy.
The Paradox of Control
Because stewards are presumed to act in alignment with the principals’ interests, Stewardship Theory argues for maximum discretion. In fact, Argyris (1964) noted that excessive control mechanisms (like micromanagement or complex reporting) often backfire.
Treating a "Steward" like an "Agent" dampens their intrinsic motivation and undermines the very pro-social behaviors the company wants to encourage.
CEO Duality: The Ultimate Test
One structural embodiment of this debate is CEO Duality—when the CEO also serves as the Chair of the Board.
- Stewardship View: Donaldson and Davis (1991) argue this is positive. It creates a "Unity of Command," allowing for faster decision-making and clear leadership.
- Agency View: Critics argue this is dangerous. It removes independent oversight (the fox guarding the henhouse). Rechner and Dalton (1991) found that companies with independent chairs often outperform those with dual-role CEOs.
Real-World Example: Elon Musk
A modern illustration of Agency Theory in action is the case of Elon Musk at Tesla.
Musk was removed as Chair of Tesla’s board (while remaining CEO) after tweeting about plans to take the company private—plans that lacked substance. This disciplinary move was a classic "Agency" correction: it reinforced accountability by separating oversight (The Board) from executive power (The CEO).
References
Argyris, C. (1964). Integrating the Individual and the Organization. New York: Wiley.
Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy of Management Review, 22(1), 20-47.
Donaldson, L., & Davis, J. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49-64.
Rechner, P. L., & Dalton, D. R. (1991). CEO duality and organizational performance: A longitudinal analysis. Strategic Management Journal, 12(2), 155-160.
