Agency theory
A tough Western nut to crack
Bosporus Bridge: one of the two bridges between Europe and Asia
Agency theory
A tough Western nut to crack
Master Thesis
University of Groningen
Faculty of Economics & Business
Master of Science in Business Administration
Specialization Organizational & Management control Author: Martin Scheltens
Student number: 1602519
Supervisor University: Pieter E. Kamminga
Preface
You are going to read my master thesis that I have submitted as the final part of the curriculum of Master of Business Administration Organizational and management control. The subject of my master thesis is whether or not the agency theory is applicable in an organization that operates within the Asian culture and if not how it can be adjusted in order to let the agency theory function properly in the Asian culture.
The time it took to write my master thesis was a bit longer than expected, but I now look back on it as an interesting and instructive time. During this time I met quite a few interesting people, namely the interviewees, who have broadened my horizon significantly.
I would like to thank my supervisor from the university, Pieter Kamminga for helping me
write my master thesis as it has become. I also would like to thank Joanna Hendriks-Gusc
for putting in her time and effort in the role of being my second supervisor.
I also owe a huge amount of gratitude to both of my parents for giving me the support emotionally as well as financially during the writing of my master thesis. And of course, my friends who were there for me when things did not go according to schedule. Last but not least I would like to thank my girlfriend, Liza, who always stood by me. Liza, thank you for putting a little color in my life when at times things did not go so well.
I hope you find my master thesis interesting to read and it will perhaps broaden your horizon as well as it did mine.
INTRODUCTION ... 6
CHAPTER ONE: AGENCY THEORY AND MANAGEMENT CONTROL SYSTEMS ... 9
§1.1INTRODUCTION ... 9 §1.2AGENCY THEORY ...10 § 1.2.1 Human assumptions ...10 § 1.2.2 Information assumption ...11 § 1.2.3 Organizational assumptions ...12 §1.3AGENCY PROBLEM ...12
§1.4AGENCY THEORY AND MANAGEMENT CONTROL SYSTEMS ...13
§ 1.4.1 Behavior based contracts ...14
§ 1.4.2 Outcome based contracts ...15
§ 1.4.3 Clan based contracts ...16
§ 1.4.4 Framework for management control systems ...17
CHAPTER TWO: THE ASIAN CULTURE AND AGENCY THEORY ...20
§2.1INTRODUCTION ...20
§2.2ASIAN CULTURE AND THE ASSUMPTIONS ...21
§ 2.2.1 Human assumption ...23
§ 2.2.2 Information assumption ...29
§ 2.2.3 Organization Assumption ...30
§2.3ASIAN CULTURE AND THE AGENCY PROBLEM ...32
CHAPTER THREE: THE HYPOTHESES ...35
§3.1INTRODUCTION ...35
§3.2HYPOTHESES ...36
CHAPTER FOUR: THE INTERVIEWS ...39
§4.1INTRODUCTION ...39 §4.2RESULTS ...40 § 4.2.1 Hypothesis 1 ...41 § 4.2.2 Hypothesis 2 ...43 § 4.2.3 Hypothesis 3 ...45 § 4.2.4 Hypothesis 4 ...46 § 4.2.5 Hypothesis 5 ...48 § 4.2.6 Hypothesis 6 ...50 §4.3DISCUSSION ...51
CHAPTER FIVE: CONCLUSIONS...55
CHAPTER SIX: LIMITATIONS & FUTURE RESEARCH ...58
APPENDIX ...59
REFERENCES ...60
FINAL QUESTION LIST FOR THE INTERVIEWS ...63
INTERVIEWS ...68
Interview one ...68
Interview three ...74
Interview four ...77
Interview five ...80
Introduction
The agency theory is an important theory which lies at the basis of most management control research in the Western world. The theory examines the agency problem that occurs when the principal delegates work to the agent. The principal and agent
relationship can exist on many levels ranging from employer-employee to lawyer-client etc (Harris & Raviv, 1978).
My master thesis will dedicate itself to the employer-employee relationship. Managing this kind of relationship effectively is the main focus of the agency theory. This subject is closely related to the management control research, because management control
research is focused on keeping the agents’ actions in alignment with the principal’s objectives and desires (Eisenhardt, 1989). The agency theory’s ideas on risk, outcome uncertainty, monitoring, information systems and incentives shed light on many aspects of the management control system of the organization (Eisenhardt, 1989).
There are a few different types of management control systems for the principal to achieve alignment with the agent. Two of these types of management control systems are explored in the agency theory; these are behavior based control and outcome based control.
From an agency perspective these two types of control are called behavior based contracts and outcome based contracts. The focus of behavior based contracts lies on trying to correct the behavior of the agent in order to align it with the goals and desires of the principal. Whereas the focus of outcome based contracts lies on the results of the agent and setting the goals in such a way that it aligns the goals of the agent with that of the principal.
One of the assumptions is the human assumption, which dictates that an agent is
opportunistic and will always act in his self-interest if the opportunity arises (Ekanayake 2004). This human assumption is written and tested in a western context. Some
management scholars have raised the question if this human assumption is universally applicable (Ekanayake 2004, Kim & Nam, 1998). These questions are based on the research of Geert Hofstede. This psychologist and management researcher has done, among other things, research on the cultural differences and similarities of the agent in more than forty countries (Goodstein, 1981).
Hofstede has found clear distinctions between the different agents in the different cultures (Hofstede, 1980, Kim & Nam, 1998). These distinctions were the greatest when he
compared the Anglo-Saxon culture with the Asian culture. Therefore, as some
management researchers have stated, it stands to reason that the agency theory may not be valid in Asian countries. For example Sharp & Salter (1997) mention that Asian managers would be less likely to act out of self-interest and therefore the agency effect would be lower in Asian countries.
Roth & O’Donnell (1996) studied an extension of the agency theory. They say that the compensation strategy (outcome based control) is influenced by the agency problem (which will be defined further in chapter one) and that the compensation strategy has to be aligned with the culture in which the agent operates.
There is also a lot of indirect support to make a difference in agents based on their cultural background. Both direct and indirect literatures create the picture that the assumptions of the agency theory might not be valid in Asian countries. So far none of the scholars have tested directly and empirically if the underlying assumptions of the agency theory can be used for management control issues in Asian countries. Some of the scholars have pointed to clan control as a possible solution for perhaps a failing agency theory in the Asian culture.
Therefore I want to dedicate my master thesis to the research of the agency theory
Main problem statement:
To what extent does an Asian context create the need for adjustment to an agency theory model of management control systems in an employer-employee relationship?
Sub questions:
How are the management control mechanisms applied in an employer-employee
relationship according to the agency theory?
In what way does the agency theory applied to an Asian context require
adjustment of the existing literature?
To what extent does the adjusted agency theory model fit with the real world?
This master thesis will follow the sub-questions as it’s the main structure. This means that in chapter one the agency theory will be analyzed and it will be analyzed how the management control mechanisms are applied in an employer-employee relationship according to the agency theory. In short it will answer the first sub-question. Chapter two will deal with the possible necessity to alter the agency theory to make it applicable in an Asian context based upon existing literature. In chapter three hypotheses will be
Chapter One: Agency theory and management
control systems
§ 1.1 Introduction
Agency theory has its roots in risk sharing among individuals or groups. This risk sharing was explored by Western minds during the 1960s and 1970s in a Western context and the research is therefore biased, which is matter for concern (Hofstede, 2001). Jensen and Meckling extended on this risk sharing among individuals or groups by introducing the agency problem.
The agency problem occurs when cooperating parties have different goals and division of labor. This occurs when the principal delegates work to an agent. For this reason the agency problem almost always occurs when there is an employer-employee relationship. Because it almost always occurs within an employer-employee relationship the agency theory has been used by a lot of different scholars in a lot of different areas. For example it has been used in accounting, economics, finance, political science, organizational behavior, sociology and marketing (Eisenhardt, 1989). It has therefore become one of the most influential theories of the last twenty years (Sharp & Salter, 1997).
The design of management control systems is heavily influenced by the agency theory (Ackere, 1993). The assumptions, on which the agency theory is based, deal with the main problems to overcome in order to create a sound management control system. In this chapter it will be researched on what assumptions the agency theory is based and what kind of relationship it has with management control systems. In short it will give answer to the first sub question:
How are the management control mechanisms applied in an employer-employee relationship according to the agency theory?
§ 1.2 Agency theory
The agency theory deals with the agency relationship where the principal delegates work to the agent. Jensen and Meckling described this relationship using the metaphor of a contract. According to Jensen and Meckling it should be the primary objective of the principal to achieve the most efficient contract. To achieve the most efficient contract however is difficult, because there are a number of problems to overcome. How and why these problems occur can partly be predicted. They can be predicted, because the agency theory is based on a number of assumptions.
The assumptions describe how the agent and principal interact with each other in an organization. They describe the logic behind the reasoning of both the agent and the principal. There are three categories of assumptions; human-, information- and
organizational assumptions. In the following sub-sections these three assumptions will be described in more detail.
§ 1.2.1 Human assumptions
The first assumption is the human assumption. The human assumptions describe the way the agent and principal act. It describes the way the agent and principal act by logically extrapolating three human assumptions; self-interest, bounded rationality and risk aversion.
Self-interest
One of the fundamental assumptions is that an agent will act in their self-interest, they are opportunistic. If there is, for example, a conflict between a principal and an agent it can be expected that an agent will act in his self-interest. The agents’ self-interested behavior can manifest itself in numerous ways. Negative examples of self-interested behavior are lying, stealing and cutting corners etc. Management control systems must be set up in such a way that it counteracts these negative examples of self-interested behavior. Rationally bounded
humanly possible; because the human brain cannot take on all the information that is needed to solve the problem. An agent will study the problem at hand and when he thinks he can make a sound decision, he will make that decision, without taking into account all the variables.
Risk averse
Another human assumption is that agents are risk averse. Agents are risk averse, because compared to the principals the agents are unable to diversify their employment and should therefore be risk averse. The agents put all the eggs in one basket so to speak (Shapiro, 2005). The principals on the other hand can diversify their investment and should therefore be risk neutral (Eisenhardt, 1989). Agents become less risk averse when they think they are in depended to fulfill their needs in live. And are therefore less concerned with keeping their job and can thus take more risk on the job.
These three sub-assumptions of the human assumptions can lead to all kind of agency problems. Although an agent is contractually bound to perform in the best interest of the principal, there are situations where the agent does not act as such. This can be, for instance, if the agent knows he is not monitored and is therefore not likely to get
punished if he acts with ill will. In this scenario an agent will exert less effort to perform his work or take advantage of the company resources for personal benefits (moral hazards) according to the agency theory (Eisenhardt, 1989). In these situations, as described above an agency problem will occur (Gomez-Mejia & Wiseman, 2007).
§ 1.2.2 Information assumption
§ 1.2.3 Organizational assumptions
The third and final assumption of the agency theory is the organizational assumption. The organizational assumption consists out of two variables. Both variables are organizational assumptions, because they deal with fundamental issues that affect the whole
organization. These two variables are information asymmetry and goal conflict. Information asymmetry
There exists an information asymmetry between the principal and the agent. This means that the principal is not aware of the agent’s actions or the information on which his actions are based (Eisenhardt, 1989). The same applies to the agent about not knowing what motivates the actions of the principal. The principal can, however, based on the information assumption, purchase most of the information that he needs. There are off course limits to the amount of information that the principal can buy.
Goal conflict
Within an organization it is likely that there will be goal conflicts between principals and agents. Goal conflict is a logical consequence of the opportunistic behavior of the agent and the amount of information asymmetry that exists between the agent and principal (Gomez-Mejia & Wiseman, 2007). To effectively resolve the goal conflicts in favor of the principal, efficiency should be applied in concordance with the effectiveness criterion (Eisenhardt, 1989). This means that when a conflict occurs the amount of resources and time spent should be as little as possible, while still giving a satisfying result in clearing up the conflict.
§ 1.3 Agency problem
to this existing research. The agency problem occurs when the cooperating parties have different goals and division of labor (Jensen & Meckling, 1976). Or, in this thesis, when an employer (principal) delegates work to the employee (agent). How the principal and agent act in this relationship is based on the assumptions. The assumptions create possible scenarios in which the agency problem can occur (Gomez-Mejia & Wiseman, 2007). The way that the agency problem manifests itself, can be in various ways. First the problem of moral hazard can arise due to the fact that the principal cannot observe the actions of the agent (Gomez-Mejia & Wiseman, 2007). Moral hazards can manifest itself, as mentioned, in the following behavioral examples: blame, impression management, lying, and other expressions of self-interest (Eisenhardt, 1989).
Secondly the agent and principal have different attitudes towards risk. The problem that can arise is that the principal and agent may prefer different actions due to the level of risk.
And finally, adverse selection can take place. Adverse selection happens when the agent claims he has certain skills or abilities and the principal cannot verify this (Eisenhardt, 1989). This can happen when an agent says he has certain experience and skills and the employer cannot verify this.
To counteract the agency problems a management control system should be designed. In the following section the relationship between the agency theory and management control systems will be researched in greater detail.
§ 1.4 Agency theory and management control systems
To overcome the agency problem the agency theory has devised two types of control or as the agency theory calls it; two types of contracts (Jensen & Meckling, 1976).
The first type of contract is: behavior based contracts and the second type of contract is: outcome based contracts.
theory searches for the most efficient contract between principal and agent. The creation of an efficient contract or control is an important aspect of any management control system (Ekanayake, 2004). There can be off course a combination of the two contracts if this leads to the most efficient contract. This can, for example, be the case for upper level managers (Eisenhardt, 1989).
Due to this search of the most efficient contract it has been suggested by several scholars (Eisenhardt, 1989 & Kim & Nam, 1998) that a third contract should be added to make the agency theory a more globally applicable theory. This third contract was developed by Ouchi and is called the clan based contract. Why it, perhaps, should be added will be discussed further in this thesis.
The contracts will be discussed in greater detail below.
§ 1.4.1 Behavior based contracts
Behavior based contracts are heavily dependent on the height of the information level of the actions of the agent. If the agent’s actions are known, through perhaps a sound
management information system, then a behavior based contract might be the best option (Eisenhardt, 1989). Another example where behavior based contracts are favored is when there is a high level of task programmability.
Behavior based contracts consists of four sub control mechanism and these four sub control mechanism can be divided further in order to achieve the most efficient contract to fit every unique situation. The four main forms of behavior based contracts are: behavioral constraints, redundancy, preaction reviews and action accountability
(Merchant & van de Stede, 2007). The four main forms of behavior based contracts can also be divided further in passive and active forms of behavior based contracts. Passive forms are behavioral constraints and redundancy. And preaction reviews and action accountability are active forms of behavior based contracts. Passive behavior based contracts are called passive because their takes no interaction place between the principal and the agent afterwards. That also means that in passive form of behavior based
Passive form: Behavioral constraints
Behavioral constraints are, as the name implies, constraints on the agent’s actions. They can, for example, impose physical constraints on the agent by not giving access to certain areas. Or another common form is separation of duties. Separation of duties makes sure that is impossible for one agent to do a difficult or sensitive job.
Passive form: Redundancy
Redundancy isn’t that much used, because it works from the following principle. When the principal assigns multiple agents to one job the greater the chance the job will be done satisfactory. Although this is true, it is also very expensive.
Active form: Preaction reviews
This form of behavior based contract consists of creating sound plans then reviewing these plans and if necessary augment them. The principal reviews how the agent has performed and if necessary they augment the plan.
Active form: Action accountability
Action accountability involves holding agents accountable for their actions. The principal defines certain actions on what is proper and what is not. And when the agent is acting appropriate reward him for his behavior and if not punish him.
§ 1.4.2 Outcome based contracts
If the agents actions are not known, but the results can easily be measured, then an outcome based contract is favored (Eisenhardt, 1989). However, an outcome based contract transfers more risk to the agent (who is risk averse, because he cannot diversify his employment). Because the agent takes on more risk he wants to be compensated for that (Ekanayake, 2004).
performance standard have to be set and finally rewards have to be linked to the
performance standards (Merchant & Van der Stede, 2007). The rewards or punishments will be given during an evaluation meeting.
The evaluation of the performance can be done, however, in three different ways
according to Hopwood (1972). Each style has different emphasize on how it approaches the results given by the agent. The different styles will be discussed below.
1. The budget constrained style:
In the budget constrained style the emphasis lies primarily on whether or not the agent can meet its term budget. How the agents succeed at making the short-term budget is relatively unimportant. This means that other factors will not be taken in to the equation (Hopwood, 1974).
2. The profit conscious style:
In the profit conscious style the emphasis lays primarily on the agents abilities to increase the long-term effectiveness in relation to the goals of the organization. The big difference with the budget constrained style can be found within the fact that whether or not the budget has been met does not guarantee the long-term effectiveness and goals of the organization (Hopwood, 1974).
3. The nonaccounting style:
The third style of Hopwood is the nonaccounting style. In the nonaccounting style budgets and other accounting data play a relative unimportant part (Hopwood, 1974).
§ 1.4.3 Clan based contracts
principal and agent it also requires a high level of commitment by the agent (Ouchi, 1979).
Another requirement in order to effectively sustain a clan based contract within the organization is an extreme form of belief to act in the group interest rather than in the belief of the individualist (Ouchi, 1980). Therefore there is little room for opportunistic behavior in the clan based organization.
Information is spreading through a clan oriented organization with the means of traditions. This means that most of the information that an agents needs comes from coworkers and is learned on the job. That’s why it is also important to be working in groups and have an extreme belief to work in the groups’ best interest. Because the binding of the group ensures that the group remains intact and continues to function.
§ 1.4.4 Framework for management control systems
Using the assumptions that form the basis of the agency theory a number of propositions can be formulated in order to create a framework that can be used to implement the most efficient contract within an organization in a specific situation. The most relevant
propositions for this master thesis will be discussed. Although the clan based contract isn’t part of the original agency theory it is mentioned here, because the clan based contract has direct influence on one proposition, proposition 6. The propositions were derived mainly from Eisenhardt paper of 1989.
Outcome based and behavior based contracts Proposition 1:
Behavior based contracts are more efficient then outcome based contracts, when task programmability is high.
Proposition 2
Outcome based contracts are more efficient then behavior based contracts, when outcome measurability is high.
This proposition is very similar to proposition 1, with that regard that it is vice versa. In this case the outcome measurability is high so that it stands to reason that an outcome based contract is more efficient then a behavior based contract.
Proposition 3:
Behavior based contracts are more efficient then outcome based contracts, when there is a sound information system.
If there is a sound information system in place within the organization then the principal is aware of the agent’s actions. And thus setting up a behavior based contract to align the agent’s actions with the desires of the principal is the most efficient contract.
Proposition 4:
Behavior based contracts are more efficient then outcome based contracts, when there exists a long agency relationship.
When there is a long relationship between the agent and the principal then it becomes easier for the principal to estimate how the agent will behave in certain situations. Therefore it is more efficient to set up a more behavior based contracts then an outcome based contract.
Proposition 5:
Behavior based contracts are more efficient then outcome based contracts, when the risk aversion of the agent is high.
Clan based contracts Proposition 6:
Clan based contracts and behavior based contracts are more efficient then outcome based contracts, when there exists little goal conflict between the principal and agent.
Goal conflict is almost always a given within an organization. There are however situations where there is no goal conflict within an organization Eisenhardt mentions highly socialized or clan-oriented firms (the clan-oriented contract was developed by Ouchi for such a firm).
When the agent is risk averse it become increasingly more attractive to use behavior based or clan based contracts in comparison to outcome based contracts.
The ideas and reasoning of the agency theory have been used globally to develop management control systems, especially with respect to behavior and results control (Ackere, 1993). Both types of control have been used extensively and all over the world. There may however be a problem with this, because the agency theory is based on the Western culture. There have been, as mentioned earlier, numerous scholars who have raised the question: “Is the agency theory is applicable to an Asian culture”. This question has been based mainly on the primacies that Asian agents would not act
opportunistically and on the implications that “face” might have on the behavior of Asian agents (Kim & Nam, 1998). Face can be described as an embarrassment or shame when a person feels his or her face has been discredited.
This is why the clan based contract was introduced. It has been mentioned by several scholars that clan based contracts might give the means to create efficient contracts in the Asian culture.
Chapter two: The Asian Culture and agency
theory
§ 2.1 Introduction
In the previous chapter it was researched on what kind of assumptions the agency theory was based and what kind of relationship it has with management control systems. Further the question was raised whether or not the agency theory is valid in organizations that operate within the Asian culture. What kind of influence the Asian culture has on the applicability of the agency theory in the Asian culture shall be researched in this chapter. And, if the Asian culture has an influence on the agency theory, in what way does the agency theory need adjustment in order to function properly within an Asian context. In short this chapter will answer the second sub question:
In what way does the agency theory applied to an Asian context require adjustment of the existing literature?
To answer this question it is a good idea to examine, for clarity purposes, on what kind of principals the Asian culture was founded, before it is researched what kind of influence the Asian culture has on the agency theory and whether or not it needs adjustment.
The Asian culture was for the greater part defined by Confucius. He was an intellectual in China, and lived around 500 BC (Hofstede, 2001, p354). Confucius set up a number of practical ethic rules by which the Asian people should live. There are four main
principals (Hofstede, 2001, p354).
1. The stability of society is based on unequal relationships between people.
(Master-follower, senior-junior. The junior owes the senior respect and obedience.) 2. The family is the prototype of all social organizations (A person is not an
individual, but rather a part of the collective).
4. Virtue with regard to one’s tasks in life consist of trying to acquire skills and education, working hard, not spending more than necessary, being patient and persevering (A person should be moderate in all things as well in losing one’s temper as in overspending)
These four principal rules have a great influence on how the agent will behave in organizations and since the agent’s behavior is based on the assumptions. The assumptions might also be subject to cultural influence.
In the following subsection, subsection § 2.2, it will be researched what kind of influence the Asian culture has on the assumptions of the agency theory. Then at the end of each sub-assumption it will be discussed what kind of consequences it has on the different contracts. The assumptions will be researched in the same order as was done in chapter one. In subsection § 2.3 it will be seen what kind of influence the Asian culture has on the agency problem.
§ 2.2 Asian culture and the assumptions
Culture is hard to define, because there are many variables that influence culture. This has led to a lot of different definitions of culture (Hofstede, 2001, p.9). The definition that will be used in this master thesis comes from a well known scholar, Geert Hofstede. He has defined culture as the collective programming of the mind that distinguishes the members of one group or category from another (Hofstede, 2001, p.9). He also has developed four dimensions and later, with the help of Bond, added a fifth dimension to chart the cultures of the various nations (Hofstede & Bond, 1988). These dimensions are:
1. Power Distance: the extent to which an society accepts and unaccepts human inequality in areas such as prestige, wealth and power
3. Masculinity vs. feminity: the degree to which masculine values like assertiveness or success dominate a society vs. feminem values like the quality of life or personal relationships.
4. Uncertainty avoidance: the extent to which people feel comfortable or uncomfortable in unstructured situations.
5. Long- vs. short-term orientation: is related to the choice of focus for people’s efforts: the future or the present.
There have been several scholars who have criticized Hofstede’s research. One of those scholars is McSweeney. His main point of criticism is the methodology that Hofstede has used for his research (McSweeney, 2002). He states that the large number of the
population is not synonymous to the validity of the research, because Hofstede uses a fifty people minimum for a country. According to McSweeney that is not enough to validate any research (McSweeney, 2002).
McSweeney also mentions that the population consisted out of only certain departments within IBM. These departments consisted of solely “middle class” people. McSweeney says that this cannot be representative for an entire country.
Finally McSweeney has critique on what kind of research the fifth dimension has been based and the consequences of that research. The research in question is the “Chinese Value Survey”. In this article Hofstede together with Bond formulated the fifth dimension. But according to McSweeney this research also shows that the dimension Uncertainty avoidance is irrelevant for the Asian culture. Therefore McSweeney argues that if the “Chinese Value Survey” is a valid research than the Uncertainty avoidance dimension must be false (McSweeney, 2002). This would implicate that the whole research of Hofstede is not valid.
within the organization were used is contested by Hofstede. He mentions that because only a few departments were used, the difference between them can be attributed to cultural differences. Therefore it is a positive that only a few departments were used instead of a negative.
Although McSweeney mentions some valid points of criticism, Hofstede’s research is the most well known and the only one of its scale. Therefore Hofstede’s research will be used for this master thesis.
The five dimensions created by Hofstede and Bond will give the means to create a literature oriented picture of what kind of influence culture has on the assumptions of the agency theory. In the following subsections it will be researched what kind of influence the Asian culture has, by using Hofstede’s five dimensions, on the three assumptions of the agency theory. First the human assumption will be discussed, than the information assumption and finally the organizational assumption.
§ 2.2.1 Human assumption
As mentioned the human assumption consists out of three human sub-assumptions: self-interest, bounded rationality and the risk-averse assumption. What kind of influence the Asian culture has on these three sub-assumptions will now be determined. Also the effect culture has on the framework (which was developed in chapter one) will be discussed briefly at the end of the each assumption to see if it has any consequences on the framework.
Human sub-assumption: Self-interest
that in the Asian culture agents are less likely to act opportunistically, especially when these variables are combined with the four other dimensions created by Hofstede. The Asian culture scores high on the uncertainty avoidance dimension. This means that the agent is less likely to act in self-interest due to these two characteristics that define high scoring cultures on the uncertainty avoidance dimension.
First characteristic: the agent has a strong sense of loyalty, which will ensure that the agent is less likely to act opportunistically. Second characteristic: agents will stay with one principal for a very long time. This in itself is not enough to rule out self-interested behavior, but if we combine this with several other characteristics that define high scoring cultures on the uncertainty avoidance dimension, it can be assumed that self-interested behavior of the agent is less likely. This can be assumed due to the following reasoning: high scoring cultures on uncertainty avoidance dimension means that agents only take known risks and have a very high appeal to purity (to be as best as one can be) and function best in a strong hierarchical control environment. Logically extrapolating from these characteristics leads to the conclusion that agents are less likely to act opportunistically.
The Asian culture is defined, by Hofstede, as being collectivistic. A characteristic for a collectivistic culture is that people like to move in groups. An employee will act according to the interest of the group and also functions the best in groups (Hofstede, 2001). This means that the agent will put the best interest of the group before his own interest, as opposed to an agent from an individual culture. A logical response to this behavior of the agent is that management in collectivistic cultures will be more group-management oriented. An example of group group-management might be cultural control which is designed to put group pressure on individuals who deviate from the group (Merchant & van de Stede, 2007).
Face (Kim & Nam, 1998)
Western principals perceive this force often as not being able to act and reason rational. This perception of face is not correct. It is difficult for Western principals as well as Western scholars to fully understand face in the context of the Asian culture, because it is such a subtle and complex force.
Because face is such a subtle and complex force it makes it hard to define. Face can best be defined if it is split in two (Kim & Nam, 1998). The first: Mien-zu corresponds with the social position of an agent. The second: Lien represents the confidence of society in the integrity of that agent’ moral character. When Lien is lost an agent can no longer function properly in an organization. It is, however, to extensive to use both sub definitions of face in this thesis. When face is used further in this thesis both sub definitions have been taken into account.
Face is a powerful force in the Asian culture and may help to explain the differences in organizational behavior between organizations that operate in the Western culture and in the Asian culture.
An agent can lose face when he is discredited. This can occur when he steps out of line or fails to do his job correctly.
When an agent steps out of line or does not do his job correctly his coworkers will correct his behavior (Hofstede, 2001). An agent will go at great lengths in order to maintain his face. An agent is highly motivated to meet the expectations of his coworkers. When a certain goals are set the agent will try to reach those goals primarily out of concern for face. Taken the above points into account an agent is less likely to act in self-interest due to increase possibility of losing face. This corresponds well with an old Asian saying: “the nail that sticks out gets hammered down”. This means that if you step out of line you will be punished.
the agent can occur. When face is lost an agent will try to create a more favorable picture for him to counteract the embarrassment that he has suffered. Or he will try to seek approval from his coworkers in order to restore his face. This is one of the few instances that an Asian agent will act with self-interest. When an agent has lost face, the group of coworkers might be discouraged to work with the agent, which would increase the shame of the discredited agent. There can also be severe consequences when the loss of face is great.
One of these consequences could be that the agent cannot function properly anymore. The agent may choose to quit and hide because the pain of staying within the
organization would be too great.
But if the loss of face is minor it can also be used to motivate the agent to greater heights in order to restore the loss of face. Therefore it is important how the loss of face occurs. The loss of face is perceived lesser when a superior confronts the agent then when this is done by coworkers. Because of the social hierarchy in the Asian culture loss of face is less serious when a higher person on the social ladder confronts the agent with his failure then when a coworker confronts the agent. Loss of face can also be reduced if the
superior confronts the agent in private and if he is indirect.
Taking the above points into account, face can be in an important motivational technique for the Asian agents, but it is a very delicate technique. If it is not used proper it can do more harm than good to the organization.
Consequences for behavior, outcome and clan based contracts
The arguments given above have consequences for all three of the contracts, especially behavior and outcome based contracts.
Outcome based contracts can, as mentioned, be outfitted with three evaluations styles created by Hopwood. Each of these styles treat accounting data in a different way. And thus each of the three styles has a different criterion for whether or not targets have been met.
This is important, because when a target has not been met and the agent must face the principal about his failure loss of face is very likely to occur. As mentioned however there are ways for the principal to reduce the loss of face. But there are more ways when using outcome based contracts to reduce loss of face by using the Hopwood styles. If the principal uses the profit conscious style or the nonaccounting style of Hopwood, he can use the loss of face in his advantage. The principal can use loss of face in his advantage when loss of face is kept at minimum. When it is kept at a minimum it will motivate the agent to restore his loss of face. The budget constrained style however lies to much emphasize on whether or not the budget has been met. And thus loss of face must occur when targets have not been met whether this fair or not.
Also when the agent is less likely to act opportunistically then there will be a decreasing motivational necessity for outcome based contracts (Eisenhardt, 1989).
Clan based contracts are well suited for an environment where there is little opportunistic behavior. Because, as Ouchi mentions, clan based contracts depend on shared common values and beliefs and in such an environment there is little room for opportunistic behavior.
Another point that has to be made in favor of clan based contracts is that clan based contracts work well with groups. This characteristic of the clan based contract coincides well with the collectivistic nature of the Asian culture.
agency theory may have to be adjusted in order to function properly within an Asian context.
Human sub-assumption: Rationally bounded
The fact that the human brain is incapable of overseeing all the variables in order to make the perfect decision when faced with a problem is not culturally bounded. There is
however a difference in dealing with a problem. According to Hofstede, Western cultures use a fuzzy solving approach as opposed to Asian cultures, which use a structured solving approach. Which approach is better is not explained further by Hofstede.
But the main point of the agency theory is that agents and principals cannot make perfect decisions because the brain cannot oversee all the variables and is not subject to cultural influences.
Consequences for behavior, outcome and clan based contracts
As mentioned is the human sub-assumption: rationally bounded not subject to cultural influences. This means that the underlying assumptions of the agency theory should not be subject to change.
Human sub-assumption: Risk-averse
Agency theory is based on the idea that agents are more risk averse than the principal. According to Eisenhardt this assumption can be relaxed in such a manner that the agent is not more risk averse than the principal. In the Asian culture agents are not likely to take risk as there are taught as a child that the world is a hostile place and they should be protected from that place (Hofstede, 2001). Furthermore Asian agents want to be told what to do by their principals and are therefore not likely to step out of line and take unnecessary risks (Hofstede, 2001). It can thus be said that the Asian agents are perhaps even more risk averse then their Western counterparts
there are more variables to consider before making such a statement. Later in the chapter other variables of culture will be discussed which indicate that behavior based contracts might not be the most efficient contract.
Consequences for behavior, outcome and clan based contracts
When an agent is risk averse a behavior based contract is more efficient then an outcome based contract according to Eisenhardt. In the Asian culture an agent is more likely to be risk averse and a behavior based contract could function well in such a situation.
An effect of an outcome based contract is that is passes more risk to the agent (Eisenhardt, 1989). However, in the Asian culture an agent is risk averse (Hofstede, 2001). In a
situation where more risk is transferred to the agent while he is risk averse it becomes increasingly more expensive and thus inefficient according to Eisenhardt.
There is no real data on whether or not a clan based contract could function properly when the agent is risk averse. However since a clan based contract is specialized to deal with groups it is more likely that clan based contracts can function properly with risk averse agents due to the group decision making.
§ 2.2.2 Information assumption
The agency theory states that information is a purchasable commodity. Information can be purchased by investing in a sound information system. The price of an information system depends on the amount of information it generates for the principal. The better the information system, the more information it will generate for the principal. The amount that the principal needs to invest in information systems depends on the level of
information asymmetry.
willing to stay committed with losing projects than their Western counterparts to avoid loss of face. In order for the principal to stay on top of the agents actions he needs to invest more in an information system than his Western counterpart to counter this
problem. But investment wise the Western principal has to invest more in his information system then the Asian principal.
However, the fact that information is a purchasable commodity is not influenced by culture. The underlying ideas and the effect it might have on the final contract installed may very well be affected by cultural influences.
Consequences for behavior, outcome and clan based contracts
As mentioned is the fact that information is a purchasable commodity not influenced by culture. This means that the underlying assumptions of the agency theory should not be subject to change.
§ 2.2.3 Organization Assumption
As mentioned the organization assumption consists out of two organizational sub-assumptions: information asymmetry and goal conflict. What kind of influence culture has on these three sub-assumptions will now be determined. Also the effect culture has on the framework developed in chapter one will be discussed briefly at the end of the assumption if it has direct consequences on the framework.
Organization sub-assumption: Information asymmetry
leads to the conclusion that the information asymmetry in organizations is low between the principal and agent in Asian Cultures.
This conclusion has consequences for proposition three of the framework developed in chapter one. Because if the principal does not have to invest in an information system, because most of the information is all ready available then a behavior based contract is the most efficient contract. However, as mentioned earlier, there are more variables to consider before making such a statement. These variables will be discussed further in the chapter.
Consequences for behavior, outcome and clan based contracts
When information asymmetry, as mentioned, is low a behavior based contract is more efficient than an outcome based contract. According to the literature the information asymmetry is generally low in the Asian culture and therefore the behavior based contract is preferred over the outcome based contract.
In the clan based contracts information is spreading through the organization by the means of traditions. This means that the information is just there for the taking. This resembles closely the findings of Hofstede. Hofstede also found that the information as just being there. However this process of assimilating the traditions might take a few years (Ouchi, 1980). We may draw the conclusion from the arguments above that the information is there for the taking and thus that the information asymmetry is low. In short clan based contracts should function efficiently in an Asian context where the information asymmetry is low.
Organization sub-assumption: Goal conflict
agent is low (Sharp & Salter, 1997). If we logically extrapolate from these two “new” variables it should lead to little or no goal conflict at all.
Hofstede has also indirectly determined that goal conflict between the agent and the principal is not likely to occur (Hofstede, 2001). Due to a high score on the power distance dimensions and a high score on the uncertainty avoidance dimension, agents expect to be told what to do and are task oriented. In such an environment goal conflict is less likely, because the agents feel comfortable in this environment. Furthermore, in Asia agents act in the interest of the group due to their collectivistic societies. This leads to less goal conflict as agents are less likely to act in self-interest.
Consequences for behavior, outcome and clan based contracts
According to the literature goal conflict is generally low in the Asian culture and therefore the behavior based contract is more efficient than an outcome based contract. Clan based contracts can function only in a no goal conflict situation as Eisenhardt
herself mentions. This is because of the requirement that Ouchi has stated for sustaining a clan based contract. Especially one of the requirements namely: common shared belief dictates that goal conflict is not a likely possibility.
§ 2.3 Asian Culture and the agency problem
As mentioned agency problems can occur by logically extrapolating the assumptions on which the agency theory is based. As determined above the Asian culture has a
significant effect on these assumptions. Therefore it stands to reason that the Asian culture also has a significant effect on the frequency and the way agency problems can occur.
The agency problems, developed by Jensen and Meckling (1976), are: moral hazard, risk sharing and adverse selection.
In an organization that operates in an Asian context the level of information asymmetry is low and thus the principal is more aware of the agent’s actions. This makes acting in self-interest less likely for the Asian agent. When these two variables are combined the chance of moral hazard in an Asian context is low.
The second agency problem that can occur is risk sharing. As mentioned, the Asian agents are not likely to take risk and expect to be told what to do. Therefore it is less likely that an agent in an Asian context will take actions that are not compatible with the principal’s desired actions.
The third and final agency problem is adverse selection. This agency problem is based on the fact that the agent will claim that he has certain skills or abilities and the principal cannot verify this (Eisenhardt, 1989). In the Asian culture it is normal for the agent to undersell their abilities (Hofstede, 2001). Extrapolating from this it is logical to say that adverse selection is less likely to happen if it is based on the idea that the agent will state to have certain skills or abilities he doesn’t have.
Based on the information stated above the agency problems do not or hardly occur in the Asian culture as it does in the Western culture. The current agency problems are based on behavior of Western agents. Therefore it could be that based on the behavior of Asian agents other agency problems might occur.
One of the “Asian agency problems” that might occur is strong negative framing. This means that Asian agents are more willing to stay committed to losing projects (Sharp & Salter, 2007). They are more willing to escalate their commitment to losing projects because they are afraid to lose face (Sharp & Salter, 2007 and Hofstede, 2001).
As mentioned are evaluations and auditing of the agent a delicate enterprise. And when used it should be done so with caution. For day to day operations evaluations and
that the agent works harder and better than before). When this does not happen in a discrete and delicate way it could be detrimental to the agent and to the organization as a whole.
Consequences for behavior, outcome and clan based contracts
Chapter three: The hypotheses
§ 3.1 Introduction
In chapter one a framework was developed of the agency theory with the new clan based contract included.
In chapter two it was examined what kind of influence the Asian culture would have on the three contracts. This was done by examining each of the assumptions and how they were influenced by the Asian culture. Then it was researched what kind of impact this would have on each of the three contracts.
From the examination, in chapter two, a couple of conclusion can be drawn.
Clan based contracts had an overall close fit with the Asian culture
Passive behavior based contracts also had a fit with the Asian culture in some
specific situations (propositions: 1,3,4,5 and 6)
Outcome based contracts can sometimes also be installed when the right
Hopwood style was assigned (proposition: 2)
In chapter three a number of hypotheses will be formulated in order to test if the agency theory can function properly within the Asian culture when it has been augmented with the findings of chapter two.
The newly formulated hypotheses will be based on the framework developed in chapter one. The new hypotheses will mostly be hybrids with clan based contracts at its base and fined tuned with the passive behavior elements or outcome based elements with the correct Hopwood style.
In the following subsection the hypotheses can be found with argumentation to the reasons behind their formulation.
§ 3.2 Hypotheses
The formulated hypotheses will now be discussed. Hypothesis 1
This hypothesis is adaptation of proposition one of chapter one. The adaptation lies primarily in the fact that it has been augmented to function in an Asian context. Clan based contracts combined with passive behavioral contracts should work well in a situation where task programmability is high, because the behavior of the agent is easily monitored.
Not all forms of passive behavioral contracts are efficient, because not all passive behavioral forms are effective when task programmability is high. An example of an efficient form of passive behavioral contract is a script when task programmability is high.
Hypothesis 2
This hypothesis is an adaptation of proposition two. In chapter one, four steps were outlined that are needed to set up an outcome based contract. One of those steps is very sensitive in the Asian culture, setting the performance standard. It is sensitive because of the possibility of losing face that comes when the standard is not met.
Clan based contracts combined with passive behavioral contracts are efficient when task programmability is high in an Asian context.
Clan based contracts combined with outcome based contracts outfitted with profit conscious or nonaccounting style elements are efficient when
However when outcome measurability is high it becomes easier to set the correct performance standards. And because the outcome based contracts are outfitted with one of the Hopwood styles the principal can be more flexible with whether or not the target has been met. This combined with the group mentality of the clan based contract should control and motivate agents properly.
Hypothesis 3
According to Eisenhardt when there is little goal conflict, as it is in the Asian culture, setting up the right contract is reduced to risk sharing considerations. The Asian agent is, according to the literature, risk averse. And therefore passive behavior based contracts are more efficient then outcome based contract outfitted with the appropriate Hopwood style. Other arguments for this choice are the possibility of losing face and the effects of
negative framing. Again the clan based contract is used as a basis for the most efficient contract.
Hypothesis 4
This hypothesis has been formulated using the basis of the clan based contract. Further elements of passive behavioral based contracts have been added to make the contract as effective and efficient as possible.
When there is a sound information system in place the principal is aware of the agent’s actions which make it easier to set up a behavior based contract. However the clan based contract is more adapt to function within group like management. That is why the clan base contract is at the base of the contract and further fine tuned with passive behavioral based contracts.
Clan based contracts combined with passive behavioral contracts are efficient when goal conflict is low in an Asian context.
Hypothesis 5
This hypothesis is adaptation of proposition four formulated in chapter one. The clan based contract was added to the proposition and the efficient passive behavior based contract remained.
When the principal and the agent have a long relationship with each other it is assumed that the principal knows the agents actions. This is why the passive behavioral contract remained. The basis of the hypothesis has been derived of the clan based contract. Hypothesis 6
This hypothesis is an adaptation of proposition five. It has been augmented in order to function properly in the Asian context. That’s why the clan based contract has been added and the passive behavioral based remained. According to the literature the Asian agent is risk averse and wont step out of line easily due to the possibility of losing face.
Clan based contracts combined with passive behavioral contracts are efficient when the length of the relationship between agent and principal is long in an Asian context.
Chapter four: The interviews
§ 4.1 Introduction
In the previous chapter a number of hypotheses where formulated with explanation on the reasoning behind their formulation. And as mentioned these hypotheses will be
empirically explored using interviews.
There are a couple of reasons why this qualitative form of research, interviews, is being used to test the hypotheses. Due to the many variables and the complexity of the matter it
may be important to go deeper into some of the answersgiven by the interviewee in order
to get all the information that is necessary (Nederhoed, 2007). Further the interviewee can also give more clarification to the answers that he has given (Nederhoed, 2007). And perhaps new information can surface during the interview which might be important to this research. By using the method of an interview any new information that has come to the surface during the interview can directly be explored further (Nederhoed, 2007). Another reason why interviews are being used is so that the nonverbal language can be picked up on (Nederhoed, 2007). Although the non-verbal communication of an Asian interviewee might also be difficult to read it will defiantly be an advantage versus, for example, a questionnaire.
The interviews were being held using a question list. The question list was based upon the hypotheses formulated in chapter three. The questions were formulated in such a way that the hypotheses can be explored in order to sketch a picture of the validity of the hypotheses.
The interviewees consisted out of exchange students from Asia who had work experience in their home country. They were approached on university grounds at random. The interview took on average about thirty minutes.
First the general findings will be discussed and then at the end of the chapter a discussion will be held on the empirical findings.
§ 4.2 Results
The general results from the interviews indicate that a slight majority has clan based contracts combined with passive behavioral elements. It is interesting to note that almost all the interviewees had more or less the same job namely that of a teacher. The contracts under which they worked, however, varied. Below, for clarity purposes, a table has been given as a short summary.
Interviewee Type of contract Hopwood style Job Country
1 Clan and passive behavioral based
contracts
No evaluation meetings Teacher China
2 Clan and passive behavioral based
contracts
Profit conscious Accountant Singapore
3 Outcome, clan and passive
behavioral based contracts
Profit conscious Teacher China
4 Outcome and passive behavioral
based contracts
Budget constrained Teacher Shanghai
5 Outcome and clan based contracts Profit conscious Teacher China
6 Clan and passive behavioral based
contracts
Profit conscious/ nonaccounting style
Teacher Vietnam
Table 1: Summary of interview results
§ 4.2.1 Hypothesis 1
The information derived from the interviews indicates that most interviewees worked with a task programmability that was medium to high. In such a situation the
interviewees should work, according to the hypothesis, under a clan base contract combined with passive behavioral contracts.
As can be seen from the table 2 on the right this combination of contracts occurs frequently. The elements of the clan based contract can be found in the deep belief in acting in the group’s best interest as well as the fact that saving face is still a strong force to correct the agent’s
behavior. Passive behavioral elements were found in the form of scripts and several physical constraints. An example of the use of scripts that was derived from the interviews is that an interviewee indicated that she had to work according to the script which was provided to her by her principal. Further examples of physical constraints are passwords on computers and being locked out of certain areas.
Aside from the combination of contracts discussed above there were also other combinations of contracts. A reason for these variations came from one of the
interviewees. As one of the interviewees noted that Asia was a very large continent and each country had a different history and thus a different culture. This resulted in different mentalities which should ultimately lead to different contracts. For example Singapore
Task programmability Type of contract Hopwood style
Medium/ high Clan/ passive No evaluation meetings
Low Clan/ passive Profit conscious
Medium Outcome/ clan/ passive Profit conscious
Medium/ high Outcome/ passive Budget constrained
Medium Outcome/ clan Profit conscious
Medium/ high Clan/ passive
Profit conscious/ nonaccounting style Table 2: Task programmability and type of contract
has been a colony of Britain for a very long time and thus has a more Western culture than compared to Japan. Japan has a very collectivistic culture with almost no similarities to the Western culture (Hofstede, 2001). Because Singapore has been a colony of Britain it can be expected that in Singapore relatively more individually based or more outcome based contract might be found than in a country as Japan were relatively more collective or behavior based contracts might be found. As can be seen from the table 1 the
interviewee from Singapore that was interviewed worked under a clan based contract combined with a passive behavioral contract which is the opposite of what might one expect given the history of the country. In this respect it can be seen that it is difficult to predict what kind of impact a different history might have on the culture of a country. It is interesting to see that even within one nation (China) there can exist two opposite
contractswithin the same profession. These opposites are the clan based combined with
passive elements contract versus the outcome based outfitted with budget constrained style of Hopwood contract. The differences between contracts within one nation can be explained by the vastness of the country. For example China is a very large country with many sub cultures. Hofstede mentions that there can be cultural differences, even within a small country. It may very well be that there are also differences between one of the largest cities in the world Shanghai and perhaps a small city a thousand miles away from Shanghai.
However a clear reason why there is such a huge difference between the two
§ 4.2.2 Hypothesis 2
The interviews have revealed that all of the interviewees worked in a situation where outcome measurability was high. According to the hypothesis they should work under a clan based contract combined with outcome based contracts outfitted with profit
conscious or nonaccounting style elements. However as can been seen from table 3 this is not the case for all of the
interviewees.
Most of the interviewees said that they worked under a combination of clan based contract combined with passive behavioral contract. Which is a different finding compared to what Eisenhardt has
mentioned. Eisenhardt said that when outcome measurability is high outcome based contract become increasingly more efficient (Eisenhardt, 1989).
The main reason according to the interviewees lies within the possibility of losing face which might be a possibility when a target is not met. An example of a target that was mentioned by one of the interviewee was that she had to make sure that at least 70% of her students passed the course with a certain grade.
As can been seen from table 3 some interviewees indicated that they worked with an outcome based contract in several different combinations. One of the interviewees indicated that she worked under a budget constrained style. It was determined that she
Outcome measurability Type of contract Hopwood style
High Clan/ passive No evaluation meetings
High Clan/ passive Profit conscious
High Outcome/ clan/ passive Profit conscious
High Outcome/ passive Budget constrained
High Outcome/ clan Profit conscious
High Clan/ passive Profit conscious/
nonaccounting style Table 3: Outcome measurability and type of contract
Clan based contracts combined with outcome based contracts outfitted with profit conscious or nonaccounting style elements are efficient when
worked under a budget constrained style, because the interviewee was judge solely on the outcome of her job. However the majority of the evaluation meetings were still indirect and very polite. The meetings were indirect in the sense that it if a target wasn’t met they weren’t told it was their fault. Instead they were told that it was the fault of their students. In the sense that the students didn’t work hard enough or that they should pay more attention. The interviewees said that they were seldom addressed directly for any failure. However some of the interviewees indicated that it became more common to attach a bonus system to the outcome based contract. According to one of the interviewees this has a lot to do with the one child policy of China. Because it used to be the tradition that the children took care of their elders, however there is now only one child to perform this duty. Therefore this child has to be relatively more successful at getting a high paid job than the former generation in order to take care of his elders. The younger generation now seek jobs which are higher paying or might be higher paying. Employers can use this motivation by attaching a bonus to the outcome based contract, because Chinese
employees are now more motivated through money.
§ 4.2.3 Hypothesis 3
The interviews have revealed that most of the interviewees have indicated that goal conflict between them and their principal was low. Most of the interviewees indicated that they tried to work hard in order to gain the respect of their coworkers as well as their employer. In this respect clan based controls are easily identified. Clan based controls are also present because the coworkers would look down on the coworkers who were not functioning well. In this respect saving face is still a strong force.
As can been seen in table 4 on the right two of the interviewees indicated that goal conflict was high. However as also previously indicated there are some who have indicated that they did work out of self-interest and thus goal conflict is likely to occur.
One even admitted at saying that it wasn’t in her best interest to work very hard, because she would get paid by the hour. This meant that it was in her best interest to drag out the course over several weeks, without becoming to apparent to the principal. She worked oddly enough, however, under outcome based contract combined with passive behavioral contracts. Without taking other variables into account clan based contracts combined with outcome based contracts outfitted with profit conscious or nonaccounting style elements should be the most efficient contract. A reason for this deviation might be that the interviewee is not the perfect role model for her country as her threshold for saving face
Table 4: Goal conflict and type of contract
Goal conflict Type of contract Hopwood style
Low Clan/ passive No evaluation meetings
Low Clan/ passive Profit conscious
Low Outcome/ clan/ passive Profit conscious
High Outcome/ passive Budget constrained
High Outcome/ clan Profit conscious
Low Clan/ passive Profit conscious/
nonaccounting style Clan based contracts combined with passive behavioral contracts are
was higher than most of her country men or that another variable was deemed more important by the principal. This variable might be the low risk aversion variable, because it was determined that she had a low risk aversion. The principal might have opted to transfer more risk to the agent by using an outcome based contract, because he may thought it was the dominate variable.
Also she worked alone and therefore had no clan based controls. She indicated that when she would work in a group she might be influenced by saving face, however as
mentioned her threshold is higher. Which makes saving face a very delicate matter as it’s also influenced by someone threshold towards this force.
§ 4.2.4 Hypothesis 4
Most of the interviewees indicated that they didn’t have much to do with any kind of information. This was due to several factors. First some of the interviewees worked on a freelance basis, which meant that they are only interested in the contents of their
assignment. Second most of the interviewees were teachers and indicated that they had no need to be fully up to date, because generally they were only interested in their own course and possible
changes within the framework that they work. Also they did work on a short term basis and were therefore not very interested in any decision making that didn’t affect them.
Information system Type of contract Hopwood style
Not sound Clan/ passive No evaluation meetings
Not sound Clan/ passive Profit conscious
Not sound Outcome/ clan/ passive Profit conscious
Sound Outcome/ passive Budget constrained
Not sound Outcome/ clan Profit conscious
Not sound Clan/ passive Profit conscious/
nonaccounting style Table 5: Information system and type of contract
The information that they do needed was mostly given to them by coworkers. Some, however, also indicated that they received a paper with some general rules. But all of them indicated that they would receive more often than not the necessary information from there coworkers. This way of information spreading through organization resembles closely the way of traditions. It can thus be said that the information is spreading through the organization very much as you would expect in a clan based organization. This can be seen in table 5.
