Corporations are in business to make money, and CEOs are in the business to get rich. Pure and simple. End of story. Or is it?
According to Dr. Robert Till, associate professor of management, and Dr. Mary Beth Yount, associate professor of theological studies, the current governance theories by which corporations are run may affect society negatively in several ways, the most critical of which is the trend toward ever-widening income inequality.
In "Governance and Incentives: Is It Really All about the Money?" (published in the February 2018 issue of the Journal of Business Ethics), Till and Yount explain modern governance theories and propose a new one.
Traditional governance models include agency, stakeholder and stewardship theories. In corporations run according to agency theory, boards use financial incentives to motivate opportunistic managers to focus on wealth creation for the stockholders and themselves. Stakeholder theory broadens the managerial goal a bit, write the authors, to include the "interests of varied groups who are impacted by the company but still assumes managers are financially opportunistic and self-centered." According to Yount and Till, these first two philosophical approaches lead to "increasingly higher executive compensation and wider disparities of income within the organization."
Stewardship theory expands the understanding of managerial motivation to include a genuine concern for the organization as a whole. It "challenges the individualistic and financially self-interested assumptions of agency theory and assumes that moral managers are pro-organizational and collectivist." Its weakness, however, is that it "does not consider the complexity of the broad array of needs and drives of an individual and the impact of societal values on those needs and drives."
The Neumann professors believe that all three of the existing theories have a limited view of the motivations of managers and “lack fundamental guidance about fostering dignity and altruism as well as more specific considerations such as how to fairly reward managers and employees.”
They propose infusing stewardship theory with principles of Catholic Social Thought (CST) to create the justice-stewardship governance model. This new approach incorporates elements of the other three theories. The application of CST, however, "not only elevates the importance of the employee as a stakeholder and outlines the responsibility of the CEO to treat their employees with justice and dignity, but it also provides fundamental guidance about nurturing dignity and altruism within cultures."
Till and Yount conclude that when boards assume a well-rounded perspective regarding the motivations of managers, going beyond an overemphasis on financial compensation as the primary way to motivate senior managers, they are better equipped to "challenge CEOs to pay living wages, treat employees with respect, give them a voice in decision making, and provide a path for employees to reach their full potential."