Principal Theory and Principle Theory: Ethical Governance from the Follower’s Perspective

Abstract

Organizational governance has historically focused around the perspective of principals and managers and has traditionally pursued the goal of maximizing owner wealth. This paper suggests that organizational governance can profitably be viewed from the ethical perspective of organizational followers – employees of the organization to whom important ethical duties are also owed. We present two perspectives of organizational governance: Principal Theory that suggests that organizational owners and managers can often be ethically opportunistic and take advantage of employees who serve them and Principle Theory that focuses on guiding principles that are sometimes taken too far in organizations. In introducing these two new organizational governance perspectives, we offer insights into the value of rethinking ethical duties owed to organizational followers. Copyright Springer 2006ethical governance, principal theory, principle theory,

Corporate Governance Structure and Its Impact on Human Resource Management and Financial Performance

“…The evolution of governance models, presented by stakeholder theory and stewardship theory, extends the company's obligations beyond shareholders and this is based on the assumption that the company has responsibilities to society and a variety of ethical and moral obligations (Caldwell, Karri, & Vollmar, 2006).…”

“…Goffee and Jones (2001, as cited by Caldwell et al, 2006) mentioned that leaders must build relationships with employees to develop a sense of commitment in a competitive global market. This brings systems management practices of human resources, called collaborative or partnership/alliance (Lepak & Snell, 1999;López Cabrales et al, 2009;Martínez Lucio & Stuart, 2005).…”

Leadership, Trustworthiness, and Ethical Stewardship

“…Caldwell and Karri (2005, p. 254) framed the role of the steward as an ''integrator of shared interests'' with a responsibility to help the organization and its members to self-actualize. Caldwell et al (2006) noted that the duties of stewards were fraught with a complex set of ethical obligations. Caldwell et al (2008) suggested that great leaders practiced ''ethical stewardship'' by pursuing the optimization of wealth creation through creating relationships that maximized stakeholder ownership and commitment.…”

Ethical Stewardship – Implications for Leadership and Trust

“…McClusky, 2002;Steinberg and Pojunis, 2000). Although stewardship theory is most commonly compared with agency theory and stakeholder theory, two new theories of governance called principle theory and principal theory also offer insights about the ''covenantal'' nature of the leader's role (Caldwell et al, 2006). Barney and Hesterley (1996) suggested that businesses commonly choose a governance form based upon problems created by bounded rationality and opportunism -even though the form of governance substantially impacts both leader behaviors and organizational culture (Thomsen, 2005).…”

“…Carroll (1996, p. 23) explained that the task of management under stakeholder theory was to ''reconcile the conflicts of interest that occur between the organization and the stakeholder groups.'' Principal theory proposed that it was the principal rather than the agent who was prone to act with opportunism to the detriment of other stakeholders -hiring the manageror agent to carry out the task of achieving short-term profits at the expense of long-term wealth creation (Caldwell et al, 2006). Principle theory described a governance approach that pursued a set of guiding principles -sometimes to excess -resulting in suboptimization of results because ideal principles and their rigid application may be either inappropriate for every situation or misapplied by unskilled practitioners (Caldwell et al, 2006).…”