The Stewardship Theory

Stewardship theory is based on a model of man where a steward perceives greater utility in
cooperative, pro-organisational behaviour than in self-serving behaviour; the theory assumes a
strong relationship between organisational success and a principal’s satisfaction. Hence, a
steward overcomes the trade-off by believing that working towards organisational, collective ends
meet personal needs.

Tricker (1969) points out that “underpinning company law is the requirement that directors
show a fiduciary duty towards the shareholders of the company.”Inherent in the role o f
directors having a fiduciary duty is that they can be trusted and will act as stewards over the
resources of the company. Proponents of this theory contend that superior corporate
performance will be linked to a majority of inside directors as they work to maximize profit for
shareholders. The reason so far advanced for this, is that inside directors understand the business
they govern better than outside directors and therefore make superior decisions (Donaldson and
Davis, 1991; Donaldson, 1990). Donaldson and Davis explain that managers are principally
motivated by achievement and responsibility need and therefore, given the needs oi managers for
responsible, se..- directed work: organizations may be better served to free managers from
subservience to non - executive director dominated Boards.

Underlying the Stewardship Theory perspective is the assertion that since managers are
naturally trustworthy there will be no major agency costs (Donaldson and Preston. 1995;
Donaldson, 1990). Stewardship theorists go further to argue that senior executives will not
disadvantage shareholders for fear of jeopardizing their reputation (Donaldson and Davis, 1994).
The implication of this theory on Board composition is that the Board should have a significant
proportion of inside directors to ensure more effective and efficient decision making.

The Resource Dependency Theory

Another important function of a board is the provision of resources.The resource

dependence model emanated from Pfeffer (1972). The resource dependence model evaluates
firms is based on their capability to obtain numerous resources from outside environment.
Therefore corporate boards bring a stream of resource because they bring a lot of professional
contacts, ideas, experience and knowledge.

Resource dependency theory also adopts a broad view that expertise and knowledge of
managers add to the resources meant to improved firm performance. The resource provision also
includes provision of advice to managing of strategic actions (Poppo and Zenger, 1998).
Businesses that are struggling with affluence issues have high probability of appointing a
representative of financial organisations to their board (Mizruchi and Stearns, 1988). This theory,
therefore, portends that expertise as well as know-how of directors are resources that can help
the firm perform better.