1. Introduction
Cooperatives are becoming strong force in today’s society and they have
demonstrated their contributions to sustainable and inclusive growth,
social development. They are social institutions that are built
collectively which are operated based on the principle of self-reliance
and motivated by their shared goals. The members contributes their
financial resources in the form of paid-up shares and they entrust their
accumulated financial resources to their elected board of directors who
will hire the management and staff to meet their common financial goals
such as generating return from every business transaction and sustaining
growth of assets and equity. In this sense, cooperatives establish a
principal-steward relationship in which the members act as the principal
and the leaders and the management and staff also acts as the stewards.
Stewardship can also be developed as a culture in a cooperative because
stewardship values can develop sustainable relationship with
shareholders, employees, the community, suppliers and customers (Heuer,
2010).
The stewardship theory refers to the degree of relationship in which the
principal extends trust to their stewards. The trust extended by the
principal monitors the actions of the stewards whether it is aligned to
the goals established (Van Slyke, 2006). In cooperatives, the board of
directors and the management were entrusted with finances and assets and
they have to mobilize these to meet the cooperative’s financial goals
specifically to maximize profitability and increase the members’ wealth
(Pandey, 2013; Cossin et al., 2015). The stewardship theory suggests
that the stewards (i.e board of directors, managers) should act as
responsibly to the assets they control (Cossin et al., 2015) and they
should be motivated to work for the principal (i.e members) because
their goals are aligned with the shared goals (Van Slyke, 2006).
Moreover, the stewards are responsible and accountable to what they do
thus, they have to carry out their tasks conscientiously (Menyah, 2013).
Stewardship theory in financial context assumes that the stewards (i.e.
board of directors, managers) are responsible in ensuring that finances
and assets are used wisely and funds are used in accordance with the
shared goals. Stewardship theory has parallel objectives with financial
decision-making because it serves as an essential qualitative
characteristic that provides guideline for the management (Lennard,
2007). Stewardship theory can become an integral component for financial
decision-making to pursue goals such as maximizing the wealth of the
shareholders while considering societal contributions (Chen, 1975;
McCuddy & Pirie 2007). Imperatively, the financial objectives of the
cooperative should not be primarily shareholder-centered but they also
have to serve the interest of other stakeholders, such as contributing
to human progress and to the wellbeing of the environment and society
(Chiu, 2012). In this sense, the management could not set aggressive
financial goals at the expense of the members and other stakeholders. On
the other hand, the members also expect a reasonable profitability and
sustainable growth and eventually they would evaluate the financial
results as a measure of the management’s performance as stewards (Chen,
1975).
Stewardship of finances involves maximizing shareholders by embracing
sound business practices (Olando et al., 2013). Merging stewardship with
financial management promotes a value system where stewards act
ethically and with high level of commitment in honouring their duties
owed to the members and other stakeholders (Caldwell et al., 2008) as
they pursue the cooperative’s financial goals. As stewards, the board of
directors and the management are responsible in ensuring that finances
are used wisely and in accordance with the policies set by the
collective general assembly. The board of directors and the management
must formulate financial management decisions such as: 1) managing their
receivables to increase their gross income; 2) utilize their assets to
improve net surplus/income; 3) maintain growth in assets to benefit
shareholders; 4) encourage their members to increase their paid-up
shares; and 5) increase their retained earnings to improve the value of
paid-up shares.
This paper aims to contribute to the validity of stewardship theory as
applied among cooperatives. It explores stewardship of finances using
financial indicators to assess the stewards (i.e board of directors and
management) in fulfilling their commitment to the financial goals and
responsibilities entrusted to them by the principal (i.e members).