Stewardship behaviours in sustainable supply chain management
Governance mechanisms come into play between buyers and suppliers when their goals are misaligned. For example, typically suppliers want to charge the highest possible price for their product and buyers want to purchase for the lowest price. Stewardship theory can be applied to situations where the interests of the principal (buyer) and the steward (supplier) are aligned, such as in a sustainable supply chain management (SSCM) context, where there is likely to be a larger collective goal of overall planetary welfare. Therefore, a business sustainability context is ideal grounding for the application of stewardship behaviours and governance methods (Cole, 2017). This chapter introduces stewardship theory as an applicable lens to consider SSCM by explaining the misfit of agency theory alone and the benefits of multiple theoretical explanations.
Accountability, responsibility and governance are crucial to SSCM because reputational risk damage can be critical to businesses. In particular, both positive and negative supplier behaviours have the potential to influence and impact the reputation and performance of other organizations in the supply chain (Kim et al., 2019), highlighting the chain liability of actors (Hartmann and Moeller, 2014). So much so that often nowadays suppliers are required to demonstrate sustainable behaviours prior to their selection by the buyer (Cole and Aitken, 2019). Governance literature is dominated by agency theory, originally used to explain the misalignment of goals of owners and managers. Traditionally, the agency explanation has been used to link buyers’ and suppliers’ competing interests in an exchange and has encouraged the use of mechanisms such as contracts for aligning the interests of principals (buyers) and agents (suppliers) to reduce opportunism where self-interest may otherwise prevail (Eisenhardt, 1989). Opportunism may stem from one party being vulnerable to the actions of another party and includes behaviours such as lying and cheating, withholding information or violating the spirit of an agreement. Opportunism is considered a negative behaviour as it increases transaction costs by requiring more control mechanisms to be employed and therefore hinders the development of trust and commitment. However, studying behavioural theories of the firm are useful in contexts where there is an increasing occurrence of longer term strategic, collaborative relationships from one-off transactions which promote opportunistic behaviour. The very goal of sustainable supply chains is to have a neutral impact, or at best have a net positive effect with all partners agreeing to the same mission, meaning there is no place for opportunism.
Both agency theory and stewardship theory focus on the relationship between principals and agents, or in the case of this chapter, buyers and suppliers, but start from different assumptions. For example, agency and stewardship theories differ in their conventions about information symmetries and goal alignment between the principal and agent/steward. Agency theory is explicit in its assumption that information between the parties is asymmetric (Eisenhardt, 1989). This means that governance mechanisms are put in place to align the goals of each party and enhance firm performance, regardless of the level of information symmetry. However, stewardship theorists endorse a model of governance which encourages the achievement of strategic objectives without the use of control (Hernandez, 2012). So while agency governance is often depicted by monitoring mechanisms, stewardship governance is represented by participatory and collectivistic environments (Madison et al., 2016). Stewardship theory assumes managers have the obligation of ensuring better achievement of organizational activities than any other selfish motivations (Donaldson and Davis, 1991). This is because agency theory is based on economic models, whereas stewardship theory is based upon the psychological and sociological literature. So, while agency theory is a well-established explanation of network governance, it falls short of explaining what is occurring in SSCM practice.