Ethical Stewardship

Ethical Stewardship – Implications

for Leadership and Trust

Cam Caldwell Linda A. Hayes

Ranjan Karri Patricia Bernal

ABSTRACT. Great leaders are ethical stewards who

generate high levels of commitment from followers. In

this paper, we propose that perceptions about the trust-

worthiness of leader behaviors enable those leaders to be

perceived as ethical stewards. We define ethical stew-

ardship as the honoring of duties owed to employees,

stakeholders, and society in the pursuit of long-term

wealth creation. Our model of relationship between

leadership behaviors, perceptions of trustworthiness, and

the nature of ethical stewardship reinforces the

importance of ethical governance in dealing with

employees and in creating organizational systems that are

congruent with espoused organizational values.

KEY WORDS: stewardship, leadership, trust, ethics

From the biting whimsy of Adams (2005) daily Dil-

bert cartoons to the wickedly familiar corporate set-

ting of Barry’s (2006) Company, the satirical insights

of business humorists remind us that those who lead

the modern organization need to be laughed at – lest

we cry in frustration at the seemingly unending

examples of mismanagement, ethical misconduct,

and patterned dishonesty of a society currently dub-

bed ‘‘the cheating culture’’ (Callahan, 2004, p. 1). In

contrast to the constant pessimism about what seem

to be unending ethical blunders in business ethics, a

small but growing group of management scholars

have advocated that business leaders can help their

companies create long-term wealth (Paine, 2003;

Pfeffer, 1998, 2005) and build organizational trust by

governing as ethical stewards (Caldwell and Karri,

2005; Pava, 2003). Leaders, these scholars suggest,

owe both society and those with whom they work a

complex array of normative and instrumental duties

that extend the obligations of governance beyond the

scope commonly taught in today’s numbers-oriented

business schools or valued by a Wall Street fixated on

the illusion of prosperity (Mintzberg, 2004).

In this article we focus on the role of the leader as

ethical steward and offer five propositions about the

nature of leadership and trust. Section one of this

article briefly describes the role of the ethical steward

as a normative and instrumental leader. Section two

explains how those stewardship roles relate to the

Cam Caldwell is Assistant Professor of Management in the

School of Business at Weber State University. His research is

primarily in the areas of organizational governance, ethical

leadership and trust. He received his Ph.D from Washington

State University where he was Thomas S. Foley Graduate

Fellow. He has worked as a City manager, Human Resource

Director, and Management Consultants for 30 years.

Linda A. Hayes is Assistant Professor and Director of Program

Assessment in the School of Business Administration of the

University of Houston – Victoria. She received a B.S.M.E.

from Clarkson University, an M.B.A from the University of

Houston, and a Ph.D from University of California at

Berkeley. Dr. Hayes has 15 years of industry experience.

Her research interests include decision-making, stakeholder

behavior, business strategy. Dr. Hayes was a 1996 NASA

Faculty Fellow. Recently, she has published in the Journal of

Management Development, Journal of International Mar-

keting, Business Horizons and International Journal of

Mobile Communications.

Ranjan Karri is an Associate Professor of Management at the

University of Illinois at Springfield. He received his Ph.D

from Washington State University. His research interests are

in the areas of entrepreneurship, ethics and strategy.

Patricia Martinez is a cum laude graduate of the University of

Houston – Victoria School of Business and works for the

Learning Education Achieve Dreams program at that Uni-

versity to help young people in the Victoria, Texas Com-

munity set and achieve personal and educational goals.

Journal of Business Ethics (2008) 78:153–164 � Springer 2007 DOI 10.1007/s10551-006-9320-1

building of trust, explaining why trust is intimately

associated with each individual’s personal perceptions.

Section three offers five propositions about the im-

pacts of trust on value creation and in creating sus-

tainable competitive advantage. Section four identifies

the contributions of this article and its implications for

both practitioners and management scholars.

Ethical stewardship and the leadership role

The concept of ethical stewardship has its roots in

stakeholder theory, and is a theory of governance in

which managers are stewards whose motives are

aligned with the objectives of several parties (Davis

et al., 1997). Governance theories are concerned

with (1) how an organization seeks to optimize

performance and accountability, (2) how values and

goals are integrated within the systems and structures

that are created, (3) how leaders develop and

maintain relationships that generate the commitment

and cooperation of those who work with and for

them, and (4) how principles of leadership and

management are formally applied in the conduct of

organizational business (cf. McClusky, 2002; Stein-

berg 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 gov-

ernance substantially impacts both leader behaviors

and organizational culture (Thomsen, 2005). Agency

theory advocates the hiring of a professional manager

to work for the interests of the shareholders in an

effort to maximize organizational performance

(Jensen and Meckling, 1976). The acknowledged

risk of this theory has been that the managers were

presumed to pursue self-interest unless constrained

by carefully developed mechanisms that provided

incentives for achieving economic growth while

protecting against self-serving behaviors (Canella and

Monroe, 1997). Stakeholder theory was designed to

balance the needs of corporate owners with other

stakeholders as an alternative governance model to

traditional agency theory. Carroll (1996, p. 23) ex-

plained that the task of management under stake-

holder 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 gover-

nance approach that pursued a set of guiding prin-

ciples –sometimes to excess – resulting in sub-

optimization of results because ideal principles and

their rigid application may be either inappropriate

for every situation or misapplied by unskilled prac-

titioners (Caldwell et al., 2006).

In describing stewardship theory, Davis et al.

(1997, p. 26) suggested that the steward ‘‘will not

substitute or trade self-serving behaviors for coop-

erative behaviors’’ but will seek to maximize utility

for the organization based upon rational principles.

Block (1996, pp. 23–25) proposed that stewardship

was founded upon ‘‘service over self-interest’’ and

that treated employees like ‘‘owners and partners.’’

Caldwell and Karri (2005, p. 251) wrote that ‘‘[t]he

fundamental assumption underlying stewardship

theory is that the maximization of long-term eco-

nomic wealth will ultimately serve to be in the best

interests of the principals and the various stake-

holders collectively, in addition to maximizing social

welfare and the long-term economic benefit to

society.’’ Principle-based and founded upon a virtue

ethics model (Solomon, 1992), ethical stewardship

integrates long-term wealth creation, a commitment

to the transformational interests of stakeholders, and

creating organizational systems that reinforce both

instrumental and normative organizational goals.

Caldwell and Karri (2005) listed 15 characteristics

of stewardship theory, comparing it with both

agency theory and stakeholder theory. Table 1

identifies each of those 15 characteristics while

adding insights as to how those characteristics impact

the leader’s role in achieving organizational goals.

The most significant point of this table is to

demonstrate that these 15 characteristics of stew-

ardship theory have significant leadership implica-

tions. Specifically, when leadership behaviors rise to

a virtue-based ethical level akin to what Cameron

154 Cam Caldwell et al.

et al. (2003) identified as virtuousness, then those

behaviors represent characteristics found in stew-

ardship theory.

Leadership theories abound in the management

literature but typically reflect a common interest

in ‘‘influencing leaders and followers to achieve

organizational objectives through change’’ (Lussier

and Achua, 2004, p. 5). These theories range from

personality and trait theories to assessments of leader

roles and behaviors) that have describe what leaders

do (Mintzberg, 1973; Westley and Mintzberg, 1989)

or the qualities that they possess (Kouzes and Posner,

TABLE 1

Stewardship characteristics and their implications for leadership

Issue of Governance Stewardship theory characteristic Leadership

implication

Ethical focus Virtue ethics based upon a

commitment

to society-based virtues and rights.

The leader owes a duty to benefit society

and to create added value and wealth.

Manager role Integrator of shared interests Short-term priorities that hurt long-term outcomes

are inappropriate.

Time focus Primary concern is long term Seductive short-term outcomes need to be weighed

carefully in light of overall benefits, values,

and principles.

Manager motivation Virtues, values, and society There are citizenship duties owed in honoring the

responsibilities of leadership.

Use of information Achieve synergies Information is shared and helps to reduce risk, improve

decision quality, and integrate opportunities.

Basis of trust Integrity Congruence and alignment of organizational rules, roles,

and values creates trust.

Moral Position Principled Duties must be honored and interests of all parties must

be protected.

Function of roles Define opportunity Creating a learning organization that empowers each

member is a high yield investment.

Key value Authenticity Opportunities and risks are carefully weighed and

choices reflect a commitment in the welfare, growth,

and wholeness of all parties.

Manager’s primary

function

Steward Leaders create meaning and pursue outcomes that

benefit everyone.

Organization goal Create long-term wealth and

achieve best interests of all

The organization owes duties to society and to its

members and stakeholders.

Manager’s personal

goal

Achieve potential The leader’s greatness comes from understanding and

achieving what is achievable by combining

everyone’s talents.

Motivational model Self-actualizing model with

intrinsic motivations

The leader values relationships, duty, and virtues and

achieves her identity by being an effective ‘‘servant

and debtor’’ to others.

Vision/Focus Increasing organizational wealth

to serve all interests

Wealth and value are measured in context with their

contributions to society, but harm that may be caused

is avoided whenever possible.

Assumptions

about People

People are collective self-actualizers

who achieve utility through

organizational achievement

Each person is valued as intrinsically important and

the rights of all are considered precious. Society

balances individual rights of citizenship and the

collective welfare and growth of the community.

Ethical Stewardship 155

2003). Schein (2004) has noted that organizational

leaders play the key role of establishing an organi-

zational culture that articulates the behaviors, rules,

and values critical to the achievement of an orga-

nization’s mission and strategies.

Leadership behaviors are both instrumental or

outcome-focussed and normative or value-based

(Kolp and Rea, 2006). Chemers has described leader

behaviors in terms of three key activities: (1) rela-

tionship development – the interactions of the leader

with other key stakeholders to develop relationships,

facilitate the needs of employees in achieving those

outcomes. and the partnering with individual orga-

nization members to create high quality interper-

sonal ‘‘connection’’ with people; (2) resource

utilization –the management of competing demands,

acquisition of organizational resources, and effective

utilization of those resources to achieve desired

goals; and (3) image management –the day-to-day

management of tasks and interpersonal contacts to

demonstrate who the leader is, and the communi-

cation of key ideas to stakeholders, and the inte-

gration of beliefs with one’s behaviors to perform

congruently with how one advertises (Chemers,

1997).

Chemers (1997) reported that leadership behav-

iors reflect the values of leaders, how they perceive

organization priorities, and their methods of dealing

with changing organizational demands. Chemers’

acknowledge the critical importance not only of

achieving the goals of the market place, the external

adaptation (Schein, 2004) described but also of cre-

ating sustainable internal relationships, the internal

integration (Schein, 2004) of the organization or the

degree to which the individual needs of employees

are met as they worked within the organization. We

suggest that ethical stewardship is a special type of

leadership relationship consisting of six elements:

(1) The leader–follower relationship is established as

a dyadic one-on-one relationship. Ethical stew-

ardship ‘‘examines how leaders form one-

on-one relationships with followers’’ (Lus-

sier and Achua, 2004, p. 223) consistent

with vertical dyadic linkage theory (Evans,

1975). Consistent with leader–member ex-

change theory, the ethical steward ‘‘attempts

to understand the quality of each dyadic

relationship and its effects on organizational

outcomes (Lussier and Achua, 2004, p.

225).’’ The relationship with employees is

nose-to-nose and treats employees as highly

valued ends rather than as means, commodi-

ties, or human resources (Kouzes and Pos-

ner, 2003).

(2) The relationship established is transformational

and transactional. Transformational leadership

pursues group goals and organizational needs

in addition to the individual needs of individ-

uals and provides a ‘‘compelling vision’’ of

what people and organizations can become

(Lussier and Achua 2004, p. 356) . Transfor-

mational leaders serve to change the status

quo by offering a vision of what can be

(Bass, 1995). Transactional leaders seek to

maintain the status quo through regular eco-

nomic exchanges (Bass, 1990). Ethical stew-

ardship seeks to protect the personal

interests of followers by creating secure ex-

change relationships, but uses that resulting

safety to unlock the potential of followers to

transform the organization.

(3) The relationship incorporates both implicit and

explicit social contracts. Duties that are unspo-

ken yet covenantal abound in organizations

(DePree, 1989). Those duties are inherently

a part of the personal relationship between

leaders and followers (Rousseau, 1995,

2003). A growing body of literature about

social and psychological contracts confirms

that leaders who honor social contracts in-

crease both the levels of commitment and

performance of those who they lead (Cald-

well and Hansen, 2005; Suazo, et al., 2005;

Turnley et al., 2003).

(4) Each follower participant interprets the relation-

ship based upon subjective self- perception. The

nature of relationships and the perceptions

of followers in viewing issues associated

with fairness, justice, and trust are subjective

perceptions based upon an individual subjec-

tive lens that consists of an ethically based

filter (Primeaux, et al., 2003). The ethical

steward, like all leaders, is viewed through

the individual lens of each follower.

(5) The focus of ethical stewardship is long-term

rather than short-term. Ethical stewardship

honors the duty of long-term wealth

156 Cam Caldwell et al.

creation to benefit all stakeholders, rather

than the short-term allure of personal

self-interest (Hosmer, 1996).

(6) Ethical stewardship demands the constant man-

agement of meaning. Great leaders emphasize

‘‘leading with meaning’’ (Pava, 2003, and

leadership becomes the management of that

meaning. Ethical leaders seek to change the

basic values, beliefs, and attitudes of follow-

ers so that they are willing to perform

beyond minimum levels deemed acceptable.

Ethical stewardship acknowledges that

meanings are in people, and the relationship

between the leader and the follower defines

that meaning.

Leadership rises to the level of ethical stewardship

when leaders earn the trust and followership of those

whom they serve by creating integrated organiza-

tional systems that demonstrate the leader’s com-

mitment to honoring the steward’s duties

(Caldwell,et al., 2002; Caldwell and Karri, 2005;

Pfeffer, 1998).

Ethical stewardship and the development of

trust

Ethical stewardship’s covenantal nature reflects the

unique perspective of the steward towards others,

and it is in honoring covenants that leaders develop

trust and honor relationships (Rousseau, 1995,

2003). Covey (2004, p. 98) defined leadership as

‘‘communicating to people their worth and potential

so clearly that they come to see it in themselves.’’

Ethical stewards build trust by truly investing in and

affirming the identities of those whom they serve.

Pava (2003) noted that the covenantal role of lead-

ership involved not only a responsibility to serve but

to help to create meaning by discovering the true

nature or identity of individuals within a complex

world. Burke (1997, p.135) described one’s identity

as ‘‘the meanings that actors hold for themselves

within a role,’’ and noted that we constantly com-

pare our self-perceptions to an ‘‘identity standard’’

through which we hold ourselves accountable.

The ethical steward seeks to help each person to

achieve their greatest possible potential (Covey,

2004), and is dedicated to the ‘‘welfare, growth, and

wholeness’’ of others whom they serve (Caldwell,

et al., 2002 p. 161). Kolp and Rea (2006) have

emphasized that ethical leadership demands a heart-

to-heart connection that honors the relationships

that exist between leaders and followers and that

establishes personal and organizational credibility. It

is this heart-to-heart connection that enables leaders

to be truly authentic and to demonstrate the level of

commitment that allows organizations to fulfill their

potential (Cooper and Sawaf, 1997). It is this same

connection that creates ‘‘authentic trust’’ that is

based upon clarity ‘‘about one’s own identity and of

one’s relationships with others’’ (Solomon and Flo-

res, 2001, p. 91).

Trust is an affirmation of one’s own identity and

an investment in one’s future. When we trust we not

only acknowledge our desire to enter into a social

contract with another party, but we willingly accept

the risks involved within that relationship (Caldwell

and Clapham, 2003; Mayer et al., 1995, Mayer and

Gavin, 2005). Ultimately, when we trust we relin-

quish our personal choice or control to another in

the expectant hope that the other party will honor

the duties that we believe we are owed within our

relationship (Caldwell and Clapham, 2003). Al-

though many scholars suggest that trust is a belief,

action, intention, propensity, or psychological state,

Senge (1990) noted that organizations ultimately

depended upon the behaviors of those who trusted.

Trust is ultimately demonstrated on a continuum –

the degree to which an individual is willing to give

his or her complete commitment to the party being

trusted (Caldwell and Hansen, 2005; Caldwell and

Clapham, 2003). Ethical stewards earn that trust by

being trustworthy (Caldwell et al., 2002).

This relinquishing of control that drives the

decision to trust is based upon an ‘‘internal, personal,

subjective’’ (Barnard, 1938, p. 89) reflection of an

individual’s willingness to comply within a ‘‘zone of

indifference’’ or acceptable. range of behaviors re-

quested by the other party. Simon (1997 pp. 201–

203) labeled this zone of indifference a ‘‘zone of

acceptance’’ to emphasize that those who follow a

leader are willing to accept a leader’s authority and

actively cooperate and collaborate with the leader.

Caldwell and Hansen (2005) suggested that this zone

represents a ‘‘zone of trust’’ which defines the

boundaries in which followers are willing to per-

sonally commit their efforts and relinquish personal

Ethical Stewardship 157

control in compliance with the roles requested of the

leader (Solomon and Flores, 2001).

Trustworthiness continues to be confused with

trust in the academic literature (Hosmer, 1996;

Caldwell and Clapham, 2003), but scholars agree that

each person trusts another when the second person is

trustworthy (Mayer et al., 1995). Trustworthiness is a

subjectively defined attribution about another person

or party that is determined by each person at the

individual or organizational level (Bews and

Rossouw, 2002). Caldwell and Clapham (2003)

noted that the subjective nature of one’s personal

experiences profoundly impact the decision to trust.

Mishra (1996) has identified a four-factor model that

frames the decision to trust that incorporates com-

petence or ability, openness and integrity, concern for

others, and reliability or consistency. Trustworthiness

is subjectively perceived and measured along a

continuum (Mayer et al., 1995; Caldwell and

Clapham, 2003), with the perceived trustworthiness

of the leader being reflected by an increased personal

commitment from the follower (Senge, 1990).

The decision to trust at the interpersonal level

encompasses one’s perceptions about the degree that

the behavior of another party demonstrates the key

elements of trustworthiness (Mayer et al., 1995).

Those perceptions reflect six key beliefs that identify

critical perceptions about how we each interpret

relationships and frame how we view the world.

These six beliefs consist of the following:

(1) Beliefs about Self. Self-perception is funda-

mental to our identities and includes how

we view our talents, individual worth, our

roles in life, and the nature of our spiritual

origin.

(2) Beliefs about Others. These beliefs encompass

the key relationships in our lives and our

conceptualizations about the nature of peo-

ple and organizations, our relationship to

society, as well as our expectations about

the duties that others have toward us.

(3) Beliefs about the Nature of God. An individ-

ual’s beliefs about the nature and character of

God, the role that God plays in the world and

in daily life, and the responsibilities that

divine law or doctrines impose on one’s

duties make up this belief – as well as whether

one chooses not to believe in God at all.

(4) Beliefs about the Past. Our individual circum-

stances are influenced past events, personal

and family history, and past relationships.

These experiences create limits on how

individuals view the world. Significant per-

sonal experiences, key historical events, and

the duties that we owe and are owed also

make up our beliefs about the past.

(5) Beliefs about Current Reality. Current reality

is defined individually based upon how we

filter data and interpret information in a

boundedly rational and boundedly moral

world.

(6) Beliefs about the Future. Our view of what

would like the future to become creates a ten-

sion between that vision and our assessment

of current reality. This view of the future in-

cludes our beliefs about relationships with

others and our duties to them, their duties to

us, and the implications of our relationship to

deity. (cf. Primeaux, et al., 2003, p. 196)

These six personal beliefs reflect how each individual

views duties that they owe and are owed in rela-

tionships, the values that they consider to be per-

sonally important, and their biasses about how their

world should be governed (Caldwell et al., 2002).

The six beliefs model also enables individuals to as-

sess the degree to which leaders behave as ethical

stewards and the degree to which those leaders are

trustworthy.

The trust decision incorporates subjective per-

ceptions about leader behaviors together with one’s

beliefs about the world. This process incorporates a

complex conceptual calculus (Creed and Miles,

1996) that makes intuitive and often unconscious

decisions about the often unspoken social contracts

that exists between people and organizations

(Rousseau, 1995). Vroom’s (1964) Expectancy

Theory is useful in explaining the complex nature of

the social contracts and exchange relationships that

impact the decision to risk and the value of out-

comes associated in following leaders. The ethical

expectations about the obligations of governance,

the role of leadership, and duties owed in the social

contract that exists between the parties have lead-

ership and stewardship implications related to the

decision to trust (Caldwell et al., 2002; Rousseau,

1995; Turnley, et al., 2003).

158 Cam Caldwell et al.

According to Expectancy Theory, each person

assigns value to desired outcomes based upon their

individual value system (Lewicki and Stevenson,

1997; Creed and Miles, 1996). Expectancy theory

identifies three factors: (1) an effort–performance

expectancy (E1) that represents a subjectively

estimated probability that effort will lead to a desired

personal performance level, (2) a performance out-

come expectancy (E2) that predicts the likelihood

that one’s individual performance will result in a

sought after outcome, and (3) the valence or sub-

jective value of that outcome (VO) that measures the

degree to which a person actually seeks the expected

reward (Pierce and Gardner, 2002, p. 247).

For example, if an individual works as a sales-

woman for an upscale shoe department, and is ex-

pected to sell shoes, her expectancy probability to

reach a monthly performance bonus goal would be

based upon whether or not her sales and the sales of

similar employees had met or been close to that

performance goal in the past. A sales person who

had never met the sales volume requirements to

meet the performance bonus and who had few ideas

to increase sales volume would be likely to have a

low expectancy that she would be able to sell the

amount of shoes required to qualify for the bonus.

Similarly, if the shoe store manager had been known

to consistently rewrite the rules and had previously

manipulated the bonus quotas, sales personnel

would be hesitant in believing that the manager

really intended to award a bonus for selling the re-

quired volume of shoes within a given month. Fi-

nally, if the saleswoman did not value the proffered

bonus as worth the additional effort required to

achieve the bonus, she would be disinclined to in-

vest those efforts to attempt to achieve the sales

bonus quota.

The decision to trust another is entirely consistent

with hopeful expectations that another party will

deliver a sought after benefit within his or her

capabilities (Solomon and Flores, 2001, p. 138).

Coupled with that hope, however, is a deeply held

recognition that there is both an acknowledged duty

owed and a potential harm that could occur to the

trusting party if that duty is breached (Hosmer,

1996). Dulany (1967) suggested that behavioral

intentions are a function of 1) the individual’s sub-

jective perceptions of the likely response of an event,

and 2) the individualized or subjective value of that

benefit. Consistent with Dulany’s model, the deci-

sion to trust is represented in the following formula:

TB=[(PT) (LoB)] (w1) + [(PVoB) (PcoB)] (w2)

In this formula TB represents the individual’s trust

behavior and is the dependent variable. PT repre-

sents the perceived trustworthiness of the person to

be trusted, based upon the subjective perceptions of

the individual perceive (Caldwell and Clapham,

2003). PVoB represents the perceived value of the

benefit of trusting and is the valence of expectancy

theory (Vroom, 1964). PcoB represents the per-

ceived cost of the benefit; it is the expected cost

incurred by the individual to personally cooperate as

part of the action to trust. W1 and W2 reflect

regression weightings for these variables. Dulany’s

formula represents a model that may be used to assess

the degree to which an individual is likely to dem-

onstrate trust behavior. This formula also provides a

tool for both scholars and practitioners to increase

the likelihood of increased employee commitment,

which manifests the decision to trust.

Sankar (2003) found that leaders who dealt with

employees with integrity, told employees the truth,

and treated employees with dignity and respect were

more likely to be perceived as trustworthy, and more

likely to earn the commitment and respect of

employees. Organizations who invest strategically in

helping employees to learn and to improve are also

more likely to see performance improvement than

leaders those who are less invested in their

employees’ success and unaware of what employees

need to improve performance (Hogan, 2005). Pfef-

fer (1998, 2005) has effectively advocated the eco-

nomic value of caring about the best interests of

employees and creating organizational systems that

invest in employees. Paine (2003) has also advocated

the importance of meshing ethical and economic

principles to maximize benefits to organizations and

the society they serve.

Propositions for performance

A growing body of empirical evidence and scholarly

opinion suggests that viewing employees simply as

cost centers fails to optimize their value as a source of

competitive advantage (Collins, 2001; Greer, 2000,

Ethical Stewardship 159

Pfeffer, 2005). Collins and Porras (1994) have doc-

umented the importance of a value-based commit-

ment to core values that benefited and characterized

the most productive businesses of the past 50 years.

Cameron (2003, p.190) has advocated that organi-

zations that are ethically based outperformed those

led by leaders with low scores in virtuousness in

‘‘profitability, productivity, innovation, quality,

customer retention, and employer loyalty.’’ Consis-

tent with our discussion of ethical stewardship, we

offer our first two propositions:

P1 Organizations with leaders who adopt an

ethical stewardship model of governance will have

employees who have higher trust in their leaders

than organizations with leaders who adopt another

governance strategy.

P2 Organizations adopting an ethical stewardship

mode of governance will also have employees who

demonstrate greater personal commitment, as mea-

sured by a personal willingness to invest in the

achievement of organizational goals and who feel

better about themselves.

The connection between the willingness to invest

in behaviors that reflect high personal commitment

and the perceived trustworthiness of leaders is a

largely affective perception of the credibility of those

who lead (Kouzes and Posner, 2003; McAllister,

1995). This affective connection between leaders

and employees is critical to creating trust (Jones and

George, 1998). Firms may enjoy a competitive

advantage vis-à-vis other firms to the extent that

such firms are marked by high trust and closer

interpersonal relationships between employees and

leaders (Pfeffer, 1998, 2005). The perceived trust-

worthiness of leaders makes the development of

these interpersonal relationships possible, suggesting

our third proposition:

P3 Organizations with leaders who are perceived

as highly trustworthy will view those leaders as

having closer interpersonal connection and a greater

emotional commitment towards the organization

than do organizations with leaders that are perceived

as lest trustworthy.

Sustainable competitive advantage occurs because

an organization is able to create economic value in

ways that competitors are unable to duplicate

(Steensma and Corley, 2001; Barney, 1991). A firm

can create a competitive advantage that is (1) valu-

able in allowing a firm to exploit environmental

opportunities, (2) rare among current or future

competitors, (3) difficult or costly to imitate, and (4)

without close substitutes (Barney, 1991). Scholars

have increasingly recognized that wealth creation is

based upon high levels of stakeholder commitment

(Rowe, 2001). When organizational policies and

practices are congruent with claimed values, firms

create trust that is also innovative in valuable, rare,

and costly to imitate ways that may be without close

substitutes (Caldwell and Hansen, 2005; Barney and

Hansen, 1994).

Employee perceptions of aligned policies and

human resource practices influence levels of com-

mitment and the resulting willingness to engage in

extra-role behaviors. Aligned human resource

practices can create enduring competitive advan-

tage, particularly in managing existing talent and

creating partnership relationships that build loyalty

and commitment with employees (Heinen and

O’Neill, 2004). Tacit, or subtle interpersonal rela-

tional behaviors of the type created by authentic

high trust relationships are among the most difficult

elements of competitive advantage to replicate

(Reed and DeFillippi, 1990, p. 90). A growing

body of literature has acknowledged the correlation

between sustainable competitive advantage and the

creation of powerful relationship-based upon

commitments to employees that integrate trust-

worthiness and effective governance (Cameron,

2003; Cameron et al., 2003; Pfeffer, 1998 and

2005). Pfeffer (1998 , 2005) has provided strong

anecdotal and empirical evidence about organiza-

tions that effectively manage people and create

aligned human resource management systems

which build trust, develop employees, and reward

excellence while simultaneously creating sustainable

competitive advantage. Consistent with these ideas,

we propose two more propositions:

P4 Employers that demonstrate a commitment to

employee welfare and that comply with principles of

ethical stewardship are more likely to have

employees who view their leaders as trustworthy

than do organizations that do not demonstrate that

commitment.

P5 Employers that have adopted human resource

policies that reflect a commitment to principles of

ethical stewardship have employees that demonstrate

higher commitment to organizational goals than do

organizations that do not adopt such policies.

160 Cam Caldwell et al.

The behaviors of leaders in creating human

resource practices that engender loyalty and com-

mitment demonstrates a commitment to long-term

employee welfare but also lays the foundation for

creating a competitive advantage that Pfeffer (1998,

2005) has suggested will lead to greater wealth

creation – a long-term objective of ethical

stewardship.

Contributions of our article

In a business environment in which trust toward

management has reached its lowest point (Mintz-

berg, 2004), the need to win back employee trust

and commitment is readily apparent and widely

acknowledged (Galford and Drapeau, 2003a, b;

Shaw, 1997). We suggest that our article offers four

meaningful contributions:

(1) Ethical stewardship is described as an ethically

superior governance model that creates long-term

organizational wealth by generating increased em-

ployee commitment. That commitment is the

direct fruit of the organizational leader’s ef-

forts to create aligned systems that build

trust and ensure the welfare, growth, and

wholeness of all stakeholders (Caldwell

et al., 2002).

(2) Leaders who follow principles of ethical steward-

ship are identified as more likely to create inter-

personal relationships that generate high trust.

Organizations depend upon trust, commit-

ment, and extra-role behaviors because

those behaviors enable firms to be more cre-

ative, provide improved service, respond to

the demands of change, and create long-

term wealth (Cameron, 2003; Pfeffer, 2005).

Understanding the importance of creating

trust and building stronger personal relation-

ships is essential to improving leader credi-

bility within the organization and in society.

(3) The importance of Expectancy Theory in under-

standing the nature of trust and trustworthiness is

identified. Consistent with the assumptions of

Vroom’s (1964) Expectancy Theory, trust

behaviors reflect the mental models of

employees and their often sub-conscious

assessment of the likelihood that their

cooperation and personal commitment will

earn a valued return. That assessment is

based upon the perceived trustworthiness of

organizations and their leaders in honoring

the social contracts that govern organiza-

tional relationships (Rousseau, 1995, 2003;

Suazo et al., 2005).

(4) The key role of core beliefs and the importance of

the six beliefs model in assessing ethical duties,

values, and realities is noted. The fundamental

beliefs set forth in the six beliefs model form

the basis for assessing the nature of interper-

sonal relationships associated with trust and

trustworthiness, as well as the duties owed

between the parties that make up perceived

social contracts (Primeaux et al., 2003;

Caldwell and Clapham, 2003). These funda-

mental beliefs also are critical in defining

reality in the leadership and governance

relationship (Caldwell et al., 2002; DePree,

1989).

These contributions are significant to business lead-

ers and corporate directors who have seen their

organizations’ lose credibility and public confidence

in a world in which business leaders are largely

distrusted, as well as to scholars and academicians

who are struggling to improve both the quality of

management being taught in business schools and

the causes of distrust intellectually (Mintzberg,

2004).

Conclusion

Harvard scholar, Lynn Paine (2003), has noted that

business interest in ethical behavior has increased

exponentially since the disasters of Enron and

WorldCom. She also argues that business success

depends upon merging the normative and the

instrumental – both social and financial performance

– in a seamless integration of effective governance

(2003). Although Paine’s observations are pro-

foundly true, business leaders continue to view

governance through the traditional lenses of agency

theory and stakeholder theory, even when mounting

evidence suggests that a new perspective is required

to create sustainable competitive advantage in to-

day’s economy (Pfeffer, 2005).

Ethical Stewardship 161

Stewardship theory and the principles of ethical

stewardship provide a valuable alternative that can

reverse the deterioration in public trust that char-

acterizes society (Callahan, 2004). Applying princi-

ples of ethical stewardship can also help business

leaders reframe their moral responsibilities, and

honor the duties that they owe society (Solomon,

1992), as corporate citizens (Manville and Ober,

2003). Leaders owe those who they serve a complex

set of ethical duties (Pava, 2003). As practitioners

and scholars increase their understanding of how

ethical stewardship can enable leaders to build trust,

the ability of organizations to achieve normative and

instrumental goals is likely to increase.

Although business leaders and academics need to

continue to laugh at their foibles, they must also

remember that the obligations of business to society

are profound and ‘‘covenantal’’ in nature (Caldwell

and Karri, 2005; DePree, 1989; Pava, 2003;). Max

DePree observed that leaders must become ‘‘servants

and debtors’’ in honoring their ethical responsibili-

ties as stewards of their businesses. Understanding

the implications of ethical stewardship and applying

its principles provides business practitioners with the

opportunity to build trust within their organizations,

improve employee commitment, and create long-

term wealth and sustainable competitive advantage.

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Cam Caldwell

John B. Goddard School of Business,

Weber State University,

3802 University Circle, Ogden, UT, 84408,

U.S.A.

E-mail: [email protected]

Linda A. Hayes and Patricia Bernal

School of Business,

University of Hoaston,

Victoria, TX, 84408,

U.S.A.

E-mails: [email protected]; [email protected]

Ranjan Karri

Department of Management,

University of Illinois at Springfield,

One University Plaza, UHB 4060, Springfield,

IL, 62703, U.S.A.

E-mail: [email protected]

164 Cam Caldwell et al.

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