Stewardship Theory

Stewardship Theory posits that managers act as responsible stewards for shareholders, focusing on ethical decisions and long-term value. Its characteristics involve managerial responsibility, long-term orientation, and aligning interests. It encourages ethical behavior, reduces agency costs, and finds applications in corporate governance and investor relations. Warren Buffett and sustainable companies exemplify this theory in action.

Characteristics of Stewardship Theory:

  • Managerial Responsibility: Stewardship theory highlights the responsibility of managers to act in the best interests of shareholders, effectively managing their assets.
  • Long-Term Orientation: Managers under this theory are encouraged to make decisions with a focus on the long-term sustainability and success of the organization, rather than short-term gains.
  • Alignment of Interests: It emphasizes aligning the interests of managers and shareholders to create a harmonious relationship, reducing conflicts and promoting cooperation.

Consequences and Implications:

  • Ethical Decision-Making: Stewardship theory fosters an environment where ethical decision-making is paramount, ensuring that managers act with integrity and honesty.
  • Trust Building: By promoting responsible stewardship, the theory helps build trust between managers and shareholders, which is essential for effective corporate governance.
  • Reduced Agency Costs: By aligning the interests of managers with those of shareholders and emphasizing long-term goals, stewardship theory can help reduce agency costs associated with conflicts of interest.

Mitigation of Issues:

  • Transparency and Disclosure: To mitigate potential conflicts of interest, organizations adopting this theory often implement robust transparency and disclosure practices, ensuring that shareholders have access to relevant information.
  • Board Oversight: Strong board oversight is another mitigation strategy, with independent directors monitoring managerial actions to ensure alignment with shareholder interests.

Use Cases and Applications:

  • Corporate Governance: Stewardship theory is widely applied in the realm of corporate governance, guiding the principles and practices that govern how a company is directed and controlled.
  • Investor Relations: In the context of investor relations, organizations leverage this theory to build trust and maintain open lines of communication with their shareholders and investors.


  • Warren Buffett: The investment philosophy of Warren Buffett, one of the world’s most successful investors, is often cited as an example of stewardship theory in practice. His focus on long-term value creation and ethical decision-making aligns with the core principles of this theory.
  • Sustainable Companies: Many sustainable and socially responsible companies adopt stewardship theory as part of their corporate strategy. They prioritize responsible management and ethical practices to benefit both their shareholders and society at large.

Key highlights of Stewardship Theory:

  • Managerial Responsibility: Stewardship theory emphasizes that managers should act as responsible stewards of shareholders’ assets and interests.
  • Long-Term Orientation: It encourages managers to make decisions with a focus on the long-term sustainability and success of the organization, rather than pursuing short-term gains.
  • Alignment of Interests: The theory promotes aligning the interests of managers and shareholders to create a cooperative and harmonious relationship.
  • Ethical Decision-Making: Ethical conduct is a fundamental aspect of stewardship theory, fostering an environment where ethical decision-making is highly valued.
  • Trust Building: By promoting responsible stewardship, the theory helps build trust between managers and shareholders, which is essential for effective corporate governance.
  • Reduced Agency Costs: Aligning managerial and shareholder interests can help reduce agency costs associated with conflicts of interest.
  • Transparency and Disclosure: Organizations applying this theory often prioritize transparency and disclosure to mitigate potential conflicts and ensure shareholders have access to relevant information.
  • Board Oversight: Strong board oversight, particularly by independent directors, is another key element to ensure managerial actions align with shareholder interests.
  • Corporate Governance: Stewardship theory plays a crucial role in shaping corporate governance principles and practices, guiding how companies are directed and controlled.
  • Investor Relations: In the context of investor relations, organizations leverage this theory to build trust and maintain open lines of communication with their shareholders and investors.

Connected Financial Concepts

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Buffet Indicator

The Buffet Indicator is a measure of the total value of all publicly-traded stocks in a country divided by that country’s GDP. It’s a measure and ratio to evaluate whether a market is undervalued or overvalued. It’s one of Warren Buffet’s favorite measures as a warning that financial markets might be overvalued and riskier.

Venture Capital

Venture capital is a form of investing skewed toward high-risk bets, that are likely to fail. Therefore venture capitalists look for higher returns. Indeed, venture capital is based on the power law, or the law for which a small number of bets will pay off big time for the larger numbers of low-return or investments that will go to zero. That is the whole premise of venture capital.

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Retail Investing

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Accredited Investor

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Startup valuation describes a suite of methods used to value companies with little or no revenue. Therefore, startup valuation is the process of determining what a startup is worth. This value clarifies the company’s capacity to meet customer and investor expectations, achieve stated milestones, and use the new capital to grow.

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Capital Expenditure

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Financial Ratio



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Behavioral finance or economics focuses on understanding how individuals make decisions and how those decisions are affected by psychological factors, such as biases, and how those can affect the collective. Behavioral finance is an expansion of classic finance and economics that assumed that people always rational choices based on optimizing their outcome, void of context.

Connected Video Lectures

Read Next: BiasesBounded RationalityMandela EffectDunning-Kruger

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