Looking at Governance
Introduction
Management principles are the core of implementing effective governance in organizations. According to Malin (2013), corporate governance looks at the holistic management structure of an organization. As such, various members are involved in the process of corporate governance and they include board members, shareholders, and other stakeholder parties in the organization. Therefore, there are external and internal aspects of corporate governance that have to be considered. Regulations and other practice laws in the operational and compliance aspects of the organization also have to be considered. We shall analyze some theories of governance, the contributions of stewardship theory, and the relationship of leadership values and beliefs in governance.
Theory Discussion
The ultimate goal of corporate governance is ensuring organizations are able to achieve various principles and objectives that satisfy the interests of the parties involved (Abdallah, 2009). As such, corporate governance becomes a balancing act of the various objectives of stakeholders such as employees, shareholders, regulatory bodies, and consumers. To this extent, various theories have been forwarded with the goal of expressing various principles important to the governance of organizations.
- The Agency Theory
This theory looks at two perspectives of corporate governance – the principal and the agent. The principal is the manager of the person who delegates work to the members who follow (Filatotchev & Wright, 2011). The theory, as such, looks at defining the roles of various parties within an organization relative to the governance structure. The agency theory outlines the controlling aspects of corporate governance to avoid conflict with the principals being the ownership aspect and the agents being the management aspect (Mallin, 2013). The ownership of the organization often delegates to the managers and as such, both parties have varying interests in the organization. For example, the owners may seek profit but maybe risk-averse to some activities which the managers may be blind to. As such, the agent or manager may act out of self-interest, which may compromise the operations. To deal with such eventualities, which are also referred to as the principal-agent problem, there is the formation of contracts that are aimed at the prevention of agents acting for self-interest but instead are tied to act in favor of the principals’ interests (Alexandar, 2010).
- Resource Dependence Theory
This is a theory that is targeted towards the governance of the organizational resources and its effect on governance. Organizations may have external sources of resources, which may include acquisition from external organizations. For instance, a party that substantially injects a huge amount of capital for the purpose of furthering a project may have to be accommodated by the organization as they may have significant interests in the project. In this way, organizations have to be flexible when dealing with external sources of funding by consideration of interests of new third parties. In the same way, organizations can gain resources from other organizations, which can significantly alter the governance of the organization to accommodate the new relationship being developed. In the same way, the characteristic of sharing resources has an impact on the structural governance since various adjustments have to be taken into account for the accommodation of the relationship. Resource scarcity is another aspect that can be important in driving an organization to adjust the governance structure for the use in sharing available resources (Hitt, 2012). As such, organizations with a wide pool of resources are increasingly powerful as compared to corporations with a lower pool. As such, the lower level organizations may apply adjustments to ensure that their governance is able to meet the expectation of the new organization.
- Stakeholder Theory
This theory looks at the relationships that exist among various stakeholders within an organization. Stakeholders have a wide definition in the context of an organization. Some include the organizational, capital, and product market stakeholders. According to Hitt (2012), the organizational stakeholders involve the team members working in an organization, the management, and the non-management involved in the running of the organization. The organization seeks to ensure that the interests of all persons are considered in a balance rather than focusing on shareholders’ interests first. Organizations are inclined to put the needs of stakeholders at the center of their operations by increasing their efficiency in meeting the needs. This works to satisfy the organizational objectives with the interests of the shareholders being satisfied. According to Jensen (2001), focusing on stakeholders enables an organization to have a clear focus on the promotion of key values of accountability, which can greatly minimize the risks that an organization takes. As such, the performance of an organization is dependent on the relationship that governance develops with the stakeholders.
- Stewardship Theory
The stewardship theory has a similarity to the agency theory in that both address the relationship of the owners and the managers of an organization. The theory states that the managers are required to undertake actions that lead to the most benefit for the owners of the business or organization. As such, the self-interests of managers are discouraged while promoting accountability and fairness for achieving organizational goals. To enhance the relationship between the owners and managers, there is a governance structure that allows for the mutual benefit of both parties. The managers are the main players in the success of the organization and as such, the owners have a role to play in ensuring their interests through sound management. This is enabled by a clear presentation of the interests that the owners seek for the managers to fulfill. The owners then motivate the managers to ensure that their interests are met and the managers’ role in the organization is highly flexible to allow for productive and effective performance.
Contributions to Effective Governance
We shall analyze the contributions of stewardship theory to non-profit and for-profit organizations.
- Non-Profit
The non-profit industry has various aspects that can be beneficial by following the principles of stewardship theory. The basic or core of the stewardship theory is that managers can be left to act alone will be responsible managers of the assets that they control (Subramanian, 2018). Non-profit organizations work towards furthering their objectives with no consideration of the profitability of the organization. As such, the main focus is on meeting the core goals, which are often oriented towards social work and research and development. Often, non-profit organizations are charitable in meeting the social needs of the community’s underprivileged. The contributions received are from donations from the public and other organizations and as such, their mission is tied to the society.
These organizations still have a structure in their management. The board or trustee ensures that the organizations are able to fulfill their mission. As such, control is group-focused. The totality of authority is determined by decisions by the governing body. This allows for the stewardship theory to be adequately applied to a non-profit organization. Self-interest is discouraged since membership is based on unanimous activities. The service of leaders to satisfy the requirements of the owners – the public and donors – places the owners in the stewardship position. As servants of the stewards, the management acts to satisfy the dynamic interests of the public. As such, the directors are the servants expected to bring service to the community or public.
In the same way, as to profit organizations, directors, or managers of the non-profit organization are bound by the principle of accountability. This is possible through the presentation of the various financial statements to the owners and the public for assurance purposes in a mission-oriented aspect. This means that the financial statements have to reflect the mission of the organization. The service to the community has to overshadow the self-interests of the individuals as well as the community. As such, the community is highly involved in its activities, especially service delivery.
- For-Profit Organizations
The for-profit organizations have a critical reliance on the stewardship theory. The ownership, leadership, operational structure, and the missions of a for-profit organization have key differences as compared to non-profit organizations. The for-profit organization has various ownership structures, which include private and public ownership. For-profit organizations are aimed at maximizing their profits through the provision of products or services in return for income. Such organizations look at profit as a key objective. There are various stakeholders depending on the ownership structure who include founders or owners and publicly-traded companies can include the public with share-interests. This can lead to complex governance structures in which the owners seek to have their interests addressed.
Principles and concepts of for-profit organizations can be applied to adhere to the changing times. The key principle of accountability is an important aspect that is adhered to. The performance of organizations is based on the targets placed upon the managers as well as their projections. The presence of founders, owners, and other shareholders can leave some of the ownership partners as silent actors in the process. However, their interests are often communicated in annual general meetings. Despite this, there is a high risk of managers acting out of their self-interests, especially where there is a conflict of interest. This can be in cases where the manager seeks to award contracts and other tenders to parties that may lead to arising of ethical issues.
Stewards in the for-profit organization are particularly prone to engaging in unethical practices to maximize profit. Stewards should be responsible. As such, the Biblical perspective on stewardship can be applied where all stewards are expected to act in consideration of God, who gives the power to produce wealth (Deuteronomy 8:17, New International Version). As such, from a biblical perspective, stewards are expected to act responsibly through good management of all things entrusted to man (Whelchel, 2012).
In a for-profit organization, all the participants are required to act in the interest of the organization. The level of accountability of the owners and directors requires an adequate level of accountability as a way of setting an example to the rest of the team members (Darus, 2011). Also, the team members have to be considered in the interest as a way of ensuring there is a high level of motivation, which is likely to lead to increased efficiency and satisfaction of the employees. This can be handled through competitively fair environments for increased productivity with a focus on serving the employees and increasing the responsiveness of the organization to external uncertainties.
Leadership Values and Effective Governance
Good governance looks at working in a principled way that ensures there is appropriate leadership offered to team members. As such, good governance can be narrowed down to leadership values. An effective team is recognized by the leadership principles that apply to its operations. In this respect, a leader that performs poorly will be visible through the results of the team. Some of the key aspects of effective leadership include leading a team by example and avoid bias. A good leadership approach that can enhance good governance is the transformational leadership approach. This is an approach that has the leadership interact with the team members to motivate them through the setting of an example.
A leader should be at the forefront of setting targets and examples for the organization. This is a key leadership value and belief that can be important for utilization for the purpose of maintaining active engagement with the employees. These systems are tailored to ensure that the stakeholders in the organization are able to achieve success by engaging in systems that are highly accountable and promote cooperation. As such, a leader is important to good corporate governance to tailor the organization to meet the mission and vision by outlining the targets and the path to meeting the targets through the setting of an example.
As a mechanism of following through, leaders should utilize the value of reviews and performance evaluation. This is supported by the value of good observation. This is a strategy that seeks to ensure that leaders are able to track the activities of their employees to achieve high-quality results. This tracking is important for good governance as a leader is able to identify the strengths and weaknesses of the personnel as well as aligning them to the goals of the organization.
For governance to be considered effective or good, there has to be consideration of various strategic directions. Some of the aspects include strategic direction, planning, creation of effective oversight, the regulation, and increased administration of ethical management in the motivation of staff. Additionally, information is exchanged in an efficient manner in an organization that requires adequate communication skills. There also has to be a democratic aspect that is considered in which there is an allowance for open communication in the organization. The leadership should also be able to inspire and motivate the employees to work towards achieving the common goals (Savareikiene, 2013).
There are various values that make the transformational leadership aspect appropriate to good governance. To begin with, there is the individualized consideration where there is adequate identification of the individual needs of people for personal development (Savareikiene, 2013). This is a key aspect of the leadership values where there is the consideration of tasks to subordinates that will enable the development of skills and the strengthening of confidence in the operation of tasks. Also, there is the promotion of intellectual activity through communication to allow for the expression of opinion in the operation of tasks. Another key aspect is the incorporation of charisma. This is the ability to influence the group to work towards the vision and utilize pride, respect, and trust as a way of setting an example for the followers.
As an initiator of change, the leader is a key part of the success of an organization. This is a key value that is important in elevating the interests of the employees in the process of ensuring that they are aware of the purpose and mission of the organization. The mission is important for the effective application of good governance to the organization by promoting the key values necessary for the realization of important tasks. The enthusiasm of the subordinates is an important aspect that enables the team members to plunge into the activity and gain the necessary satisfaction from the process. In this way, the value of the leader as an initiator of change is enabled, which leads to the development of an organizational culture that is appropriate for the implementation of various perspectives needed to meet the vision and aims set forth.
Conclusion
In conclusion, various theories on governance have been put forth which explain the relationship of governance structures in an organization. The analysis of the theories, the contributions of stewardship theory to organizations, and the relationship of the leadership belief and values to good governance has enabled a better understanding of governance in the modern-day. The understanding of good governance is important for the effective development of individuals that have adequate knowledge and skills to head the 21st-century organization. Further analysis of the various leadership theories and their application to good governance is important for the development of a clear understanding of the leadership structures and the necessary tools for modern-day leaders in a highly dynamic and evolving environment.
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