Poverty of Agency Theory and Poverty of Managerial Practice: The Royal Bank of Scotland Fiasco

The divergence of ownership and management in modern capitalism gave rise to agency theory as a framework for analysing corporate governance. There is now an emerging body of literature questioning the wisdom of the focus on agency theory in business schools. We argue that the poverty of agency theory is compounded by the culture of deference to authority entailed in reliance on technocratic advice. By reference to the concept of hegemony, we conjecture that hegemonic pressures have produced a homogeneous managerial class with similar preference for maximizing short-term profit. The argument is illustrated empirically by the case example of the collapse of The Royal Bank of Scotland, where shareholder representatives followed management advice in pursuing a course of action that led to the demise of the bank.