Agency - It’s always a risk giving it but it may be a greater risk not giving it.

You may have come across the type of leader who says, “Because I said so.” You may have had it said to you, or you may have even said it yourself.

You may have worked in an environment where you felt like a robot. Your day consisted of fulfilling tasks akin to digging holes only to refill them again, not understanding the reason or purpose. You may have identified better ways to dig or refill the holes, but not be able to share that gained knowledge. In other words, you had no agency.

To address agency means answering the question “what’s in it for me”? It surprises many to realise the answer is not your pay. Salary is not considered a motivator in Strategic Human Resource Management. (As an aside salary can supplement other motivators like appreciation, purpose, or life balance, but that is a topic for another occasion).

The essence of agency theory is that one party (the Principal) delegates that work to another (the Agent). This scenario can apply from the simplest case of a parent delegating a task to a child to a complex franchise or MNE operations.

Agency theory has its origins in 1960’s Economic studies, specifically relating to managing risk. Commonly identified agency risks are goal conflict and information asymmetry, however unstated a prioris of trust and risk appetite influence our ability to give agency to others.

For those inclined to dig deeper, there are deviations in agency theory which branch off into either positivist or principal-agent agency theory, with even further applications or interpretations depending on various fields such as economics, sociology, organizational behaviour and many more. I only mention this as it is likely that, depending on your exposure to agency theory, it is quite likely that your understanding may be slightly different. In the interests of self-disclosure, my exposure has largely been in the organizational behaviour field, leaning into principal- agent research.

Enough of the theory, how does this work in practice.

If you have had “because I said so” said to you, and didn’t see it as a negative experience, there was sufficient trust gained from other experiences with this person. That is, other exchanges included the giving of agency - you had reason to think that you were able to have an element of autonomy appropriate to your stage, situation, or circumstance.

Trust and risk appetite are more closely related than people think. The risk appetite of the principal plays a big part on giving agency. Growth cannot occur without taking risks and giving agency. Control freaks aren’t good at giving agency. I have seen, on numerous occasions, a person with controlling tendencies relinquish some of their control only to have it blow up to varying degrees. In their mind this usually justifies their reason for maintaining their control of a situation, making it harder for them to see the value of giving agency.

The complicating factor is that their risk aversion makes it hard for them to understand that giving agency is different to relinquishing control. Trust is not as evident to the agent if control has merely been relinquished.

Trust works best when the Principal is trustful and the Agent is trustworthy. Words alone are not what gives agency, agency is given through other interpersonal actions that evidence trust.

These are the a prioris, the crux of agency theory is dealing with goal conflict and information asymmetry.

Back to “what’s in it for me,” agency works best when the goals of both parties are aligned - when the outcomes sought are compatible. To use an extreme example, it is why most would not work for a gangster no matter how good the money was - the goal conflict (as well as other considerations) would be too great.

Information asymmetry is another key issue in agency theory. Shared knowledge is critical to good agency - you have to bring people along. In all agency theory research and governing documents are critical as they provide the parameters in which an agent should operate.

Agency theory works best when the principal has a healthy risk appetite, there is trust and there is goal and information alignment.

Let’s break it down to a mother (principal) sending the daughter (agent) to the shop for the first time.

The mother has taught the daughter road rules and her years in the family have aligned values that inform goals. The mother gives her a $5 note to buy a litre of milk. The mother has evaluated the risks and thinks the daughter is streetwise enough for the task. The principal is trustful enough to entrust the task to the agent. Hopefully, the agent has had opportunity in the past to evidence a trustworthy character. It can be safely assumed that there is goal alignment if the daughter has been taught values and understands the importance of having food on the table (and that goal conflict will not emerge unless the daughter is overcome with temptation of sweets). No contracts have been drawn up on this occasion, but a social contract has been assumed and knowledge sharing has occurred over a period of years, with further instructions on this particular activity that the change is to be brought back. Agency for the daughter is further increased if she really wants a glass of milk (goal alignment).

This simplistic approach obviously needs to take much more into consideration when applied to more complex situations such as employment, contracting, franchising and other partnership opportunities. The elements however remain the same. (This is why I love studying theories, identifying the commonalities that can apply to most situations).

How principals give autonomy to agents - whether autonomy is primarily assigned or assumed, is a worthy discussion for another time. This is especially relevant in global settings where cultural considerations and local knowledge affects operations.

In its simplest, or most complex form, agency works best when there is goal and information alignment. The principal or parent entity needs to have a healthy risk appetite and practice good risk management. Trust and goal alignment needs to be established and maintained through good information sharing.

“Because I said so,” rarely works.