The Importance of Board Independence (IVOR nr. 90) 2012/3.5.0:3.5.0 Introduction

The Importance of Board Independence (IVOR nr. 90) 2012/3.5.0

3.5.0 Introduction

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

In contrast to the agency theory and TCE theory with their model of man that can be characterised by a self-interested agent, rationally maximising his own economic gain, the stewardship theory assumes a manager to be a good steward for the company’s resources and assets. He is a trustworthy individual who aims to do a good job (Donaldson and Davis 1991: 51). Subsection 3.5.1 describes the stewardship theory and subsection 3.5.2 elaborates on the board composition according to the stewardship theory. Table 3-4 first gives a short summary of the stewardship theory, which is worked out further in the remainder of this section.

Table 3-4: Summary of the main characteristics of the stewardship theory.

Description of theory

The stewardship theory considers the manager to be a good steward for the company’s resources and assets, and a trustworthy individual who aims to do a good job. Agency costs are minimised by the manager, because of the fear of ruining his reputation by harming shareholder interests.

Problem

The interests of shareholders need to be protected, but the agency theory framework with monitoring does not work. NEDs are unable to monitor and check management effectively, because of the lack of time and background of the NEDs.

Solution

Since stewards are naturally trustworthy, monitoring has an adverse affect on company performance. Board members should be insiders, because they have more and better knowledge of the company. Less independent boards are accompanied by better company performance.

Focus on independence

The stewardship theory adheres to the belief that less independent monitoring has positive effects on company performance. There is a focus on independence in the stewardship theory, but this focus is directed at a movement away from independence and not towards independence.

Deze functie is alleen te gebruiken als je bent ingelogd.