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The Uses and Abuses of Agency Theory

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  • Heath, Joseph

Abstract

The use of agency theory remains highly controversial among business ethicists. While some regard it as an essential tool for analyzing and understanding the recent spate of corporate ethics scandals, others argue that these scandals might not even have occurred had it not been for the widespread teaching of agency theory in business schools. This paper presents a qualified defense of agency theory against these charges, first by identifying the theoretical commitments that are essential to the theory (in order to distinguish between agency theory itself and certain incorrect interpretations that have been widely promulgated), and second, by specifying more clearly the different ways that agency theory can be used to analyze relations within the firm. The recommendation that follows from this analysis is that agency theory be used as a critical-diagnostic tool, to identify the points at which both firms and markets will be vulnerable to breakdown in the absence of moral constraint.

Suggested Citation

  • Heath, Joseph, 2009. "The Uses and Abuses of Agency Theory," Business Ethics Quarterly, Cambridge University Press, vol. 19(4), pages 497-528, October.
    • Handle: RePEc:cup:buetqu:v:19:y:2009:i:04:p:497-528_00
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    Cited by:

    1. Björn Fasterling & Geert Demuijnck, 2013. "Human Rights in the Void? Due Diligence in the UN Guiding Principles on Business and Human Rights," Journal of Business Ethics, Springer, vol. 116(4), pages 799-814, September.
    2. Claus Dierksmeier, 2020. "From Jensen to Jensen: Mechanistic Management Education or Humanistic Management Learning?," Journal of Business Ethics, Springer, vol. 166(1), pages 73-87, September.
    3. Petrus Venter & Rodney Duffett, 2022. "A Framework for a Generic Retail Charter: A Guide towards Sustainability and Stakeholder Support," Sustainability, MDPI, vol. 14(23), pages 1-29, November.
    4. Igor Filatotchev & R. Duane Ireland & Günter K. Stahl, 2022. "Contextualizing Management Research: An Open Systems Perspective," Journal of Management Studies, Wiley Blackwell, vol. 59(4), pages 1036-1056, June.
    5. John Hasnas, 2013. "Whither Stakeholder Theory? A Guide for the Perplexed Revisited," Journal of Business Ethics, Springer, vol. 112(1), pages 47-57, January.
    6. Francis Hannafey & Lawrence Vitulano, 2013. "Ethics and Executive Coaching: An Agency Theory Approach," Journal of Business Ethics, Springer, vol. 115(3), pages 599-603, July.
    7. Candace Martinez & J. Bowen, 2013. "The Ethical Challenges of the UN’s Clean Development Mechanism," Journal of Business Ethics, Springer, vol. 117(4), pages 807-821, November.
    8. Dirk C. Moosmayer & Sandra Waddock & Long Wang & Matthias P. Hühn & Claus Dierksmeier & Christopher Gohl, 2019. "Leaving the Road to Abilene: A Pragmatic Approach to Addressing the Normative Paradox of Responsible Management Education," Journal of Business Ethics, Springer, vol. 157(4), pages 913-932, July.
    9. Dominic Martin, 2013. "The Contained-Rivalry Requirement and a ‘Triple Feature’ Program for Business Ethics," Journal of Business Ethics, Springer, vol. 115(1), pages 167-182, June.
    10. Frooman, Jeff, 2021. "Where MLM Intersects MFA: Morally Suspect Goods and the Grounds for Regulatory Action," Business Ethics Quarterly, Cambridge University Press, vol. 31(1), pages 138-161, January.
    11. Sareh Pouryousefi & Jeff Frooman, 2019. "The Consumer Scam: An Agency-Theoretic Approach," Journal of Business Ethics, Springer, vol. 154(1), pages 1-12, January.
    12. Amanda M. Y. Chu & Mike K. P. So, 2020. "Organizational Information Security Management for Sustainable Information Systems: An Unethical Employee Information Security Behavior Perspective," Sustainability, MDPI, vol. 12(8), pages 1-25, April.
    13. Furqan, Mehreen & Ijaz, Maha, 2014. "Publication Trends and Methodological Advancements in the Area of Agency Cost," Sukkur IBA Journal of Management and Business, Sukkur IBA University, vol. 1(1), pages 57-86, October.
    14. Surendra Arjoon & Alvaro Turriago-Hoyos & Ulf Thoene, 2018. "Virtuousness and the Common Good as a Conceptual Framework for Harmonizing the Goals of the Individual, Organizations, and the Economy," Journal of Business Ethics, Springer, vol. 147(1), pages 143-163, January.
    15. Jeffrey S. Harrison & Joyce van der Laan Smith, 2015. "Responsible Accounting for Stakeholders," Journal of Management Studies, Wiley Blackwell, vol. 52(7), pages 935-960, November.
    16. Liliana Hawrysz & Jolanta Maj, 2017. "Identification of Stakeholders of Public Interest Organisations," Sustainability, MDPI, vol. 9(9), pages 1-13, September.

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