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).