Principal-agent relationships on the stewardship-agency axis

TLDR

The article reviews nonprofit principal‑agent relationships in the literature. The study aims to clarify these relationships by contrasting agency and stewardship theories, proposing a board‑manager versus manager‑employee division, and outlining implications for policymakers and researchers. The authors introduce agency theory’s mathematical components, contrast them with stewardship theory, and argue that distinguishing board‑manager from manager‑employee interactions clarifies the stewardship‑agency balance. Literature review reveals no consensus on whether agency or stewardship theory better explains nonprofit principal‑agent relationships.

Abstract

This article provides an overview of the literature on nonprofit principal-agent relationships. It depicts the nature of agency theory and stewardship theory, analyzes the origin of their struggle within the nonprofit structure, and marks directions for a conciliatory approach. We open with an introduction to agency theory and discuss the two main components of its mathematical branch. We thereby contrast it with stewardship theory and elaborate on the arguments that can affect the position of nonprofit principal-agent relationships on the stewardship-agency axis. Analysis of the existing literature points to a lack of consensus as to which theory should be applied. We argue that the division of nonprofit principalagent relationships into board-manager and manageremployee interactions may help to clarify the balance between agency theory and stewardship theory and may lead to the establishment of a strongly founded theory on nonprofit principal-agent relationships. We close with a discussion of how this article may prove valuable to nonprofit policymakers and other empirical researchers.