Agency Theory, Corporate Governance and Ethics

Agency Theory, Corporate Governance and Ethics

            As academics we are perhaps unused to seeing a direct impact from our abstract theorizing but in the case of agency theory one can point to the profound impact that its assumptions have had in both characterizing and seeking to reform corporate governance practices. One of the reasons for the success of this theory is that it has kept a similar distance from actual board practices as those who are keen to understand and influence what goes on in boards – investors and those regulatory authorities who act principally on their behalf. Its negative assumptions about human nature, I would suggest, have a natural consonance with those who monitor boards remotely and who, as a result of this distance, are fearful that their interests are being abused.

We could suggest that the value of the dismal assumptions of self-interested opportunism is that one’s confidence in others is seldom misplaced. Better to assume the worst than to become disillusioned by having one’s trust in distanced others abused. But in the paper that follows I want to argue that such fail safe pessimism is much more productive that it imagines itself to be. Rather than merely observe some truth about the opportunism of human nature, as this belief has become embodied in boards in the attempt to constrain and align self interest towards investor interests, it has had the effect of producing or a least promoting the very self interested opportunism that it fears.

In order to explore corporate governance, not as a theory about how to constrain and align a given ‘self interested’ human nature, but rather as a site for the production and reproduction of self-interested opportunism, the paper shifts the focus of attention away from assumptions about human nature to practices and their effects both objective and subjective. In this way I attempt to offer an alternative account of the production and reproduction of self-interested opportunism both in directors and in investors. Performance measurement both within and beyond the corporation, and the visibility it creates is argued to have the effect of individualizing the director; effects that are most evident in the effects both of sackings and of share-options. But investors distrust of remote directors has as its correlate, I suggest, a certain attachment to self-interested opportunism – the self-interest of the investor. To acknowledge both agency theory’s deficiency and productiveness as a theory of the motives of the other would perhaps open the door to a questioning of the other half of the equation – the assumed sovereignty of the property rights of owners and those who represent these.

From within such an individualized subjectivity ethics is at best what I have described as ‘the ethics of narcissus’; a concern to be seen and to represent the self/corporation as ethical. But ethics and the construction of ethical appearances I argue are very different and in the final part of the paper I draw upon the work of Levinas to offer a counter view of the ethical capabilities of the person which is the complete antithesis of the assumed individualism of agency theory.

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