The Agency Theory

Abstract

In this chapter, we discuss the agency theory. The agency theory is a principle utilized in an attempt to explain the complicated relationship that exists between the owners (principal) and managers (agents) of the business. Based on this, we propose that the agency theory is an attempt to explain the complexity of human behaviour in the principal-agent relationship. We are of the view that when the desires or goals of the principal and agent conflict, it is difficult or expensive for the principal to verify what the agent is doing. Since the theory is an attempt to explain the complexity of human behaviour in the principal-agent relationship, we pose the question: what happens to the theory in the era dominated by intelligent machines? We conclude that with AI, there will be new frontiers. These new frontiers include, among other things, the certainty of sharing of intelligent information that would, in the context of the agency theory, be available to both the agent and the principal. Further, we observe that the advantages of intelligent systems are updateability and connectivity. Using these strengths, we think intelligent agents will be swift in picking up the information discrepancies. Intelligent systems have the capability of harvesting information from different sources. Once gathered, this information will be updated in the principal’s system, given that the systems will be integrated. Finally, we think it conceivable that perhaps the agent, knowing that intelligent agents are deployed widely and that these intelligent systems have the capability of harvesting data from different repositories, will moderate his or her behaviour to be closely aligned to that of the principal.