A CRITICAL PERSPECTIVE TOWARDS AGENCY THEORY
Kartika Putri Kumalasari 1) Made Sudarma 2)
1) Ariwiguna & Associate, Jl. Pudak No 10, Malang, 65141.
2) Brawijaya University,Jl. MT. Haryono 165, Malang, 65145 Surel: Kartika.putri.kumalasari@gmail.com
Abstrak: Sebuah Perspektif Kritis terhadap Agency Theory. Tujuan dari pene- litian ini adalah menjelaskan sifat, fungsi, peran dan kritik terhadap teori kea- genan. Metode kualitatif digunakan dalam penelitian ini. Keagenan didefinisi- kan sebagai proses di mana aktor secara rasional melakukan dengan intensi, rencana dan manajemen yang efektif untuk mencapai tujuan tertentu. Selain itu, teori keagenan mendiskusikan masalah ketika ada perbedaan antara kepen- tingan dan tujuan individu dengan orang lain. Jika pemilik memperoleh kuasa yang tinggi dan kemampuan untuk memerintah agen mereka, maka agen harus melaksanakan kegiatan berdasarkan kepentingan pemilik untuk memaksimal- kan kekayaan mereka sendiri.
Abstract: A Critical Perspective towards Agency Theory. The aim of this re- search is explaining the nature, function, role and critics towards agency theory. Qualitative method was employed in this research. Agency is defined as a process of rational actors to conduct intentionally an effective plan and management to achieve specific goal. In addition, the agency theory discusses problem when there is a discrepancy between interests and goals of individual with others. If the principal gains high power and capability to order their agents, then agents must conduct activities based on the principals’ interest to maximize their own wealth.
Key Words: agency theory, critics, interest, understand the organization.
Agency concept is just not pals to use their authority towards clearly defined yet. It requires fur-
their agents to achieve their goals.
ther processes and meets certain People have been misguided to criteria to be classified as a theory.
treat the agency as a theory not Those undefined concepts can al-
as a concept in their way of think- ways be used in the non-empirical
ing and not as the real condition sense, only if they were implicitly
of agency itself. Afterwards, their defined concepts. Thus, the use of
misleading thought will embed in undefined concept will definitely
their action. This action may influ- destroy the empirical character of
ence the interaction in the society. system.
For those who have strong interest How does agency concept af-
and power, they will tend to de- fect reality nowadays? People feel
ceive the powerless society class. that agency concept is sufficient
However, this fenomena is not yet enough as reference to make con-
taken into a consideration.
tract without looking back again
Concept is less scientific than
at the history of agency. At least, theory. Theory is a contempla- those who are related to the cre-
tive and rational type of abstract ation of contract should under-
or generalized thought, or the re-
Jurnal Akuntansi Multiparadigma
stand the nature, function, and JAMAL sults of such thinking. Depending
Volume 4
how agency works. Because, in Nomor 2 on the context, the results may for
Halaman 165-329
reality, agency theory has power Malang, Agustus 2013 example include generalized expla-
ISSN 2086-7603
if it e-ISSN 2089-5879 were the authority that sup- nations of how nature works. The ports the capability of the princi-
term "theory" refers to scientific
Jurnal Akuntansi Multiparadigma, Volume 4, Nomor 2, Agustus 2013, Hlm 269-285 theories, a well-confirmed type of explana-
Point ’b’ until ‘d’ are not fulfilled yet, tion of nature, made in a way consistent with
because there are still extra assumptions scientific method, and fulfilling the criteria
in agency theory. Meaning that agency as required by modern science. Such theories
a theory is not sufficient enough to explain are described in such a way that any scien-
a certain condition. Caldwell (2006) critizes tist in the field is in a position to understand
the concept of agency. It shows that from and either provide empirical support ("veri-
the nineteenth until twentieth century, the fy") or empirically contradict ("falsify") it.
agency was not fixed as theory yet. But, Popper (1951: 71) says that theoretical
most people use agency as theory to solve system may be said to be axiomatized if a set
their problem and they already use it in in- of statements, the axioms that have been for-
terdisciplinary knowledge. During my study mulated match with the following four fun-
for obtaining bachelor degree in accounting. damental requirements:
I never found agency theory in one chapter
a. The system of axioms must be from con- that fully and merely discussed about agency tradictions (self contradiction or mutual
theory. It always appears as supporting ex- contradictions).
planation for the other theories. Logically, if
b. The system must be independent; it must people see it is important and already in the not contain any axiom deducible from the
form of theory, it should be discussed as one remaining axioms.
main topic at least in one chapter of books
c. Sufficient for the deduction of all state- related to accounting. The chapter should ments belonging to the theory which is to
be able to explain very well about agency it-
be axiomatized. self for example what agency is including its
d. Necessary, for the same purpose, which function and its impact for the principal and means that they should contain no extra
the agent,the reason why there are subjects assumptions.
called as principal and agent, how it works As classically conceived, an axiom is an
and then discuss it based on a discipline. In evident premise to be accepted as true with-
this case, the explanation should be based out any disagreement. Referring to those ex-
on the accounting perspectives. planations, from point ‘a’, agency is might be
It is the unique insight of agency. Agen- classified as theory. In accounting, agency is
cy relationship exists in daily life. It has also well-known theory to solve agency problem.
been described clearly in professional work- Auditing is one of subject matter in account-
ing area such as: accounting, economics, fi- ing that uses agency theory. Thus, it sup-
nance, marketing, political science, organiza- ports the ‘a’ point.
tional behavior, and sociology. Based on that Back to he classical nineteenth-centu-
reason, there is a more danger effect when ry, entrepreneurs had little need for an ac-
we accept premises too hastily (Droage and countant as in the modern sense; they were
Spiller 2009:42). When theory becomes em- accountable to the law of the land and their
bedded in the scholarly literature, its premis- own conscience, but beyond that they were
es often become it is widely accepted. We can sole judge of their own performance whether
fail to recognize situations where a theory’s it was good or bad.
robustness may be compromised and leads The expanding influence of the audit-
to inaccurate application. ing in general is derived from two sources:
Based on the circumtances mentioned (1) the increasing complexity of the modern
above, agency serves as the main topic of this industrial world and its greater emphasis on
study. This study is a basic research which accountability, meaning that the need of in-
employs literature review as the technique dividuals refers about his or her actions one
for analysis. The basic research is conducted man is to refer his actions to judgment by
to investigate issues relevant to the confir- standards he or she shares with other men
mation or disconfirmation of theoretical or (Carmichael and Willingham 1985:9). (2) empirical position of the agency theory (Bor-
There was a different interest between the dens and Abbot 2005: 19). Critical approach owner or principal and also with agent. The
is used to understand and answer the issue. contradiction was started from the interac-
Macionis (2007:39) says that critical sociol- tion between two or more subjects (agents ogy is the study of society that focuses on the and principal), therefore auditor is needed to
need for social change. Keesey (2003:3) ex- check the agent’s performance.
plains that to study criticism systematically, we need to make the arguments explicit. A
Kumalasari, Sudarma, A Critical Perspective Towards...271 conceptual scheme or organizing metaphor
be able to give practitioner understanding on is needed to define,analyze and compare the
some control situation.
various contexts in which all particular inter- The research contributions are (1) to pretations are made. I use types of criticism
find and discern the objective meeting point that see the author’s conscious and uncon-
between the nature of idealism and nature scious intentions and beyond these,his or her
of realism from agency theory, by then the entire social,political and intellectual mileu
theory can be applicable for user or practi- are used as the determiners of the research’s
tioner, (2) as an addition to collection and meaning. The concern is to investigate the
enlarge perspective of agency from sociolo- causal contexts of the work, and their repre-
gist’s for students or others who has inter- sentation based on historical criticism.
est to learn more about it. Accountant, audi- The criticism approach employed in tor, manager are parts of sociologists andIt this study concerns with the conventionality
is beneficial to broaden the perspective from of all literatures and argues that any work
others for understanding the whole story a must be understood by making an analogy
whole understanding of theory, (3)giving con- with other works that employ similiar con-
sideration for government or other party who ventions. This approach is called ‘intertex-
have responsibility to create and establish tual’ criticism. Additional explanations, lit-
policy for formulating obligations and rights erary words’ or ‘literary structure’ are given
of employees or citizens. At least, it can mini- for the circumtances requires more practi-
mize the expectation gap from the owner and cal and less ambigous terms. Literary text is
employee or employee to employee or govern- employed because the main concern of this
ment to citizens by decreasing asymmetry study is with the printed page, although the
information.
researcher should take into a consideration
METHOD
that some researchers have existed for cen- turies in purely oral form and that recita-
The paradigm of this research is quali- tions are not quite the same as written text.
tative-exsploratory. Critical Theory based on Based on sociology perspectives, critics
Miles and Huberman (2000:280) is stressing is not just to reach the social world but to
the importance of emancipatory that makes change it in the direction of democracy and
people aware about inequitable or oppressed social justice. Sociologists use the critical ori-
positions and empowers them through cor- entation to change both the society and the
rective actions. Exploratory studies are un- research character itself. They often identify
dertaken when relatively little is known personally with their research subjects and
about something, perhaps because of its encourage them to decide what to study and
“deviant” character or its novelty (Singleton how to work. The researchers and subjects
and Straits 2005:69). When trying to explore use their findings to provide a voice for less a topic or phenomenon about which one is
powerful people and to advance the political known a little bit knows very little, it is need-
ed to begin with a general description of the goal of a more equal society. Equal society phenomenon. Literatures is a unit of analy- means that all humans are equal in funda- sis. Secondary data are used as the source of mental worth or social status. the data type. Literature review is as a tech- The objective of this research is to falsi-
fy the nature of agency theory. It is assumed nique to collect the data (Bordens and Ab- bot 2005:60). After that I need to do coding
that if the nature of agency has been already (Strauss and Corbin 1990:97) and memoing known,thus its function can be understood to storage the data (Babbie 2005:397). Next, because the nature of theory is to describe history, function, benefits, and etc. The na- I use content analysis to analysis the data
ture of agency theory deals with the basic (Babbie 2005:328). Data verification uses internal, construct and external validity form of agency itself. Then, impact towards (Creswell 1994:157; Singleton and Straits principal and agent is given as critics agency 2005:100). Here is the explanation of the re- theory. It is important to reveal the truth and
search method.
where other people have clear understanding in using the utility of agency theory. Based
Qualitative research is discrete field of question that encompasses both micro- and
on the literature, agency theory has a role to macro analysis drawing on historical, com- accommodate the self-interest between the parative, structural, observational and inter- principal and agent. It is important to enable actional ways of knowing (Biber and Leavy prediction and explanation of behavior. To
Jurnal Akuntansi Multiparadigma, Volume 4, Nomor 2, Agustus 2013, Hlm 269-285 2004:1). Creswell (1994:1) designed it to be
groupings such as families, organizations, consistent with the assumption of a quality
and cities; as well as various social artifacts paradigm. This study is defined as an inquiry
such as books, periodicals, documents, and process of understanding a social human or
even buildings. Actually, the unit of analysis human problem, based on building a com-
is easily identified. In this research, the unit plex, holistic picture, formed with words, of analysis is a theory that is agency theory.
reporting detailed views of informants, and In this research, researcher uses sec- conducted in a natural setting.
ondary data (archaival data) as sources to Subsequently, I attempts to derive a
be ready to manage and borne the useful in- theory by using multiple stages of data col-
formation. Bordens and Abbot (2005:61) ex- lection and the modification and interrela-
plain that primary source is one containing tionship of categories of information (Strauss
the full research report, including all details and Corbin1990:1) There are two primary necessary to duplicate the study. Secondary characteristic of this design that are con-
source is one that summarizes information stant comparison of data with emerging cat-
from primary sources. For example review egories, and theoretical sampling of different
papers and theoretical articles that briefly groups to maximize the similarities and the
describe studies and results, as well as de- differences of information.
scriptions of research found in text books, Theory is an idea or a set of ideas in-
popular magazines, newspapers, television tended to explain something about life or the
programs, films, or lecturer, financial report, world, especially one that has not yet been
meeting report,articles, etc. It is important for proven to be true (Longman 2007:1648). The
me as researcher to understand this source theory should provide clear enough catego-
of data to make sure that data is valid and ries and hypothesis so that crucial ones can
able to be used in research.
be verified in present and future research; The steps of data collection involve setting they must be clear enough categories and the boundaries for the study, collecting in- hypotheses. The purpose of this research is
formation by doing collecting through docu- exploratory. Exploratory studies are under-
ments. I use literature survey as a technique taken when relatively little is known about
to collect the data.
something, perhaps because of its “deviant” Although standing in the midst of all character or its newness. When trying to ex-
this activity, I make sure that there is noth- plore a topic or phenomenon about which ing that can disrupt the activity. Based on one knows very little, one necessarily begins
this reason, watch the proceeds and keeps with a general description of the phenome-
the track of everyone and everything. It is non. For these reasons, I decide to use in the
important to monitor the quality, timing of exploratory study which is more open than
research, and researcher respond and satis- in other kinds of research.
faction. That is how information gathering is
I use archival study to support my data
conducted.
collection, storaging, and analyzing step. After that, from possessed a growing This study deals with the theoritical founda-
mass of data and need to be classified or tions of archival science, in an effort to show
categorized individual piece of data, coupled that they are hardly objective. All sciences as
with that some kinds of reclamation sys- interdiciplinary and as part of what it calls
tem, this process is called as coding (Bab- the universal field of research which con-
bie 2005:394). These procedures allow to re- nects the sciences with each other through
cover material and to strengthen the result ideas, knowledge and methods. Lovblad by using open coding. Researcher needs to (2003:134) explains that the management of
initial classification and labeling concepts in physical record in archaival study: selection
qualitative data analysis. In open coding, the and appraisal,retention and preservation, ar-
codes are suggested by the researchers ex- rangement and description and access and
amination and questioning the data (Strauss use.
and Corbin 1990:61)
In social research the entities (objects Then another steps that researcher has or events) under study are referred as a unit
done was memoing. In the critical perspec- of analysis (Singleton and Straits 2005:45).
tive method, the coding process involves Social scientists study a variety of units, more than simply categorizing mass of text. these include individual people; social roles,
As researcher codes data, researcher apply positions, and relationships; a wide social technique of memoing that refers to writing
Kumalasari, Sudarma, A Critical Perspective Towards...273
Table1. Critics Definition Based on Formal Work Criticism No Formal Work Criticism
Focus
Definition
1 Historical Critisism
Author
I use to intrepretation the meaning (relatively stable and unchanging through time) and critic the significance (which may change from reader to reader and from period to period).
2 Reader-Response Criticism
Audience
Critics are most often concerned with the represent audience. In this critics I put my little interest in authors or intended meaning.
3 Intertextual Criticism
Literature
I try to see what meaning could be discovered in works of literature from their context in literature. This primary meaning was called the”literal”meaning, a phrase with a luxuriant growth of semantic tangels around the words. Critics is laying on the question of what the proper subjects were that criticism ought to depend on.
memos or notes to myself as researcher and ters) in a text. Conceptual analysis analyze others involved in the project. Some of what
and interpretes text by coding the text into during analysis may end up in final report
manageable content categories. Relational
I made concept mapping to clear the analysis builds on conceptual analysis by ex- qualitative data analysts that spend a lot of
amining the relationships among concepts in time committing thoughts to paper, but this
a text (Sekaran and Bougie 2010:386). process is not limited to text alone. Often we
Critical Theory that based on Miles and can think out relationships among concept
Huberman (2000: 280) is stressing the im- more clearly by putting concepts in graphical
portance of emancipatory that makes people format (Babbie 2005: 399).
aware about inequitable or oppressed posi-
I apply content analysis that is a study tions and empowers them through correc- of recorded human communications, such as
tive actions. Denzin and Lincoln (2011:121) books, web sites, paintings and laws. Con-
have an idea that critical intelligence being tent analysis requires a thoughtful handling
defined as the capacity to engage in moral of the”what” that is being communicated in
critique. Keesey (2003:3): the literature resources and start to analyze
I use literature as intertextual criticism by using “why” and “with what effect” (Babbie
to explore the meaning and critic the signifi- 2005:329) After that, I did conceptual analy-
cance of agency theory. I felt that no critic sis establishes the existence and ferquency
had given his full attention of criticism: try- of concepts (such as words, themes, or chap-
ing to see what meaning could be discovered
Figure 1. Analytical Critic Process: Formal Work Criticism
Jurnal Akuntansi Multiparadigma, Volume 4, Nomor 2, Agustus 2013, Hlm 269-285 in works of literature from their context in lit-
my literature analysis. Historical criticism erature. All meaning in literature seemed to
focuses on the meaning that is relatively sta-
be reffered first operation of all to the context ble and unchanging through time. I use the of intentional meaning, always a secondary
this to see the author’s intention and beyond and sometimes the wrong context. That is,
these, his or her entire social, political and the primary meaning that a prose paraphrase
intellectual milleu as the determiners of the could represent. The text should speak to us.
researcher’s meaning. As I said before on the However, a text can not be made speak to us
introduction that I concerned to investigate until what it says has been understood.
the causal contexts of the work, and these Since the meaning represented by a text
represents forms of historical criticism. is that of another, the intepreter can never be
Next, I use reader – response criticism certain that my reading is correct. The read-
also to see whether this issue still relevant ers must realize verbal meaning by his own
to do inquiry now. It is concerned with the subjective acts (no one can do that for them)
represent audience. It means that some se- but if they remember that his job is to con-
mantics are fond in people, not in words, and strue the authors meaning, they will attempt
many theories of interpretation are based on to exclude their own predipositions and to belief that we must look either to the author impose those of authors (Keesey 2003:24). or to audience if we are to understand the The intrepreter’s goal is simply to show that
meaning of literary text. Both historical and
a given reading is more probable than others. reader-response criticism are able to support That is why Keesey (2003:24) explains the me for doing literature criticism and decrease criteria to chosse the right literatures based
bias on my data.
on form of language, they are:
I use clarification of researcher bias
1. Legitimacy, the reading must be per- (Creswell 1994:168) that explaining the re- missable within the public norms of the
searcher’s role toward the research. Here, I language in which the text was com-
am as the researcher who falsifies the history posed. For example: books and articles.
of agency theory to get the history tree. Be-
2. Correspondence, the reading must ac- sides that, I concern to observe the consisten- count for each linguistic component in cy data based on the literatures. All at once, the text.
clarification and consistency are important
3. Generic Appropriateness, if the text fol- to examine internal validity; construct valid- lows the conventions of a scientific es-
ity, external validity and reliability as that re- say, for example, it is in an appropriate
sult in data verification. Measurement valid- to construe the kind of allusive meaning
ity refers to congruence or “goodness and fit” found in causal conversation.
in the researcher as instrument. Also, I use historical and reader-re-
As mentioned in Creswell (1990:159) sponse criticism to verification the result of
internal validity is needed to describe how
Kumalasari, Sudarma, A Critical Perspective Towards...275
Figure 2. Discussion Framework
the study will address and the accuracy of
RESULT AND DISCUSSION
the information and whether it matches with Nature is a character of something that reality. Validity discusses an informant and
explains particular events to happen without research process to be authenticated and doing anything to change the result and has
trustworthiness. Construct validity empha- greater effect (Longman 2007: 1060). The key sizes the meaning of the responses to one’s
word mentioned in the definition of nature measurement instrument. How are they to
is character which means that the character
be interpreted? Is the instrument measur- is naturally given and has a greater effect, ing the intended concept (or construct)? This
without doing anything to change (gift), and kind of validity bases an accumulation or re-
has greater effect. Then, chapter II deals with search evidence and not mere appearances.
the nature of agency. It explains the agency Back to Creswell (1990:158) that external from ontologically. Ontological view of agency
validation refers to discuss the limited gener- is defined by providing the basic form and alizability of findings from study. The intent
characteristic of agency. The basic form is of qualitative research is not to generalize the simplest part of agency, and the charac- findings, but to from unique interpretation of
teristic refers to the particular combination event. One of the example is in manuscript-
of qualities that makes agency as a particu- ing process. In manuscripting process, I start
lar kind of concept.
to write a sentence or sentences to describe History of agency can be described in the contents of each chapters. I realize that
the conduct of sociology. The formative pe- it is important to ease the undertanding for
riod in the history of agency is a wide range my research. Since I write in narrative way. It
of social activities that are conveniently in- can increase the external validity.
cluded under its rubrics, although it is not essentially related to the theory, for exam-
Jurnal Akuntansi Multiparadigma, Volume 4, Nomor 2, Agustus 2013, Hlm 269-285 ple the history and technique of charities
and corrections, and the whole institutional structure built up to deal with them. Char- acteristic in this entire field is the association of scientific inquiry with social action. The typical procedure is to understand it, and in- vetigate of a concrete situation.
The hardest part in sociology is estab- lishing the precise date when sociological the- ory began. People have been thinking about, and developing theories of social life since the early history. Moreover sociologists or even I will not go back to the seventeenth century. This is not because people in that era did not have sociologically relevant ideas, however because the return on people investment in time would be small, people would spend a lot of time getting very few ideas that are rel- evant to modern sociology. In some cases, none of the thinkers associated with those eras are considered as sociologists. They are classical sociological thinkers. First, the so- ciological perspective will be given by exam- ining the main social and intellectual forces that shaped their ideas.
Sociology is a descriptive, historical, and explanatory account of society viewed as concrete reality Giddings in the Timasheff (1967:84). Thus, sociology is the description of a unique, non-recurrent process, though its element may be recurring. I am not try- ing to force a particular theory but attempt- ing to visualize the process of development of theory in sociology manifested in the appear- ance, struggle, and disappearance or sur- vival of agency. This section mainly concerns itself principally with the history of agency.
The purpose is to provide the filiations and opposition of ideas, to put in order for the
invention, to find out in the earlier theories origin or anticipation of the later, and to dis- cover the advance of truth through the clash of opinions.
Agency happens inside of agents. The most difficult part is agency happened in-
side or, latent. It cannot be seen directly. But agency has power to act and change things. It is the unique insight of agency. The basic nature of agency comes from every individu- alis coming from each people to decide what they are going to do. Agency has two roles as principal and agent. Where principal gives certains instructions to gain get more profit and agent performs based on the order from principal. Everyone has these two roles in their selves to survive in this universe world.
Hegel and Marx point out the impor- tance of control and this idea is supported by other scientists meaning that the idea trav- els through time and space. Since Hegel and Hegel has observed that the process of evolu- tion occurs beyond the control of people and their activities. In any case, people seem to move towards a greater consciousness of the world as they could be, they seem to move into the desired in the ”desired” direction. Desire refers to a high degree of want or hope for something. (Longman American Diction- ary 2003:432). Based on that reason, com- munism or socialism needs to be controlled to decrease the conflict because desire with-
out any control can lead human to be greedy.
A person act is based on his or her wants not by his or her needs that will lead to exploi- tation. A want can not be stopped because there is no limitation.
The term of principal and agent has been known since Hegel (1770-1831) and Marx (1818-1883). By that time, principal is well known as people who have has money but do not have enough energy and skill to do production. Furthermore, agent is labor who has skill and energy to do production but do not have money. These premises are summaryy of agency problems during Hegel’s and Marx’s life.
Agency can be occured in the relation- ship, interaction and communication. When agent has relationship with other societies and has interaction in a defined territory and
shared culture (Macionis 2007:667). Dur- ing culture sharing and interaction agent use communication to deliver the message. Communicating assertively is needed to de- scribe and mention how the problem affects somebody, solution purposes, to confirm un- derstanding, and reflect somebody assertive- ness (Devito 2007:341).
Agency is a process of interest (need, in- terest, and intention) of rational actors who intentionally conduct an effective planand management for achieving their goals. The process, in addition, supports the communi- cation to understand the interest of rational actors. Communication has a role to make distinct conduct of effective plan and man- agement for reaching the goals, as common elements of communication comprise are in- cluding people, messages, channels, noise, context, feedback, and effect. Communica- tion is a process of transferring thoughts and ideas from one person to another. It is a pro- cess of people sharing thoughts, ideas, and feelings with each other in commonly under-
Kumalasari, Sudarma, A Critical Perspective Towards...277
Figure 3. Individual Process of Rationalization
standable ways (Ariwiguna 2012).Caldwell that creates conflict. 2006. Ritzer and Goodman (2004a, 2004b,
Thirdly, agency can be found in inter- 2004c).
action and relationship. In the interaction Secondly, agency becomes a problem and relationship, the deeds are easy to be when there is a divergence between inter-
observed by other individuals (Margaret and ests and goals between one individual with
Taylor 2006:23). When the deeds already from one individu to others. It called as agen-
have been observed, then the agency process cy problem. The agency problem can eas-
is able to be explored. It is explained clearly ily cause conflict. Here, communication also
that deeds (actions) is as the result of agency. take part in the conflict. Because there is a
Agency concerns with the system of trouble in the communication process then
manner which sustains hierarchies of organi- the message is not delivered or achieved in
zational power. The agency theorists assume understandable ways. Conflict can be hap-
that rational utility maximizes maximazing pened within the individual in interperson-
the behaviour of all individuals. They assert al relationship and in small interpersonal, that individuals may be described in objec- small group and public (larger scope of small
tive manner and independently in social con- group). Communication has two roles in text. Figure process of agency and conflict agency both as supporter (to make the pro-
explains the reason why agency is suitable cess of agency become clear) and as agritator
for solving the problem in the society.
Figure 4. Process of Communication
Jurnal Akuntansi Multiparadigma, Volume 4, Nomor 2, Agustus 2013, Hlm 269-285
Figure 5. Process of Agency and Conflict
Function means the purpose that some- authority to the agent (Kivisto 2005:1).While thing has or the job that someone or some-
agents are individuals who perform some thing does (Longman 2007:656). If one thing
services on the behalf of principal (Hunt III is a function of another, thus it is produced
and Hogler 1990:443).
by or changed according to the other thing. The organizational association between In addition, if something has functioned, it
principal and agent is also called as agency means that it works correctly or in particular
relationship. Hunt III and Hogler (1990:443) way. Chapter III deals with the purpose that
states that agency relationship is as a con- agency has and how it works. The informa-
tract under which one (or more persons) the tion given in this chapter started with where
principals engage with another person. This the agency can be implemented what is the
formal engagement between principal and function of agency in accounting, why agen-
agent need a contract to visualize the formal cy is so important to be studied, and explain
form. Contract is important to analyze imbal- how agency can do all those things.
ance of power inherent in the social context Agency is important for organization of an organizations. Also, serving primarily to manage it to be better (Hunt III and Ho-
is to legitimate a particular form of economic gler 1990:437; Kivisto 2005:1; Eisenhardt organization. Contract appears as the con- 1989:57). Because organization has a role sequences of wholly voluntary interactions as interplay of technology, social structure,
among many private persons, of all who are culture and physical structure, embedded in
free in their nature and equal to one another. contributing to environment (Hatch 1997:15).
For that reasons, contract should de- Western society is frequently referred to as
termine the most efficient governing agree- an organizational society; it is certainly true
ment and giving assumption about people that most of our daily activities take place
(self interest, risk aversion, and bounded ra- within organization, such as companies, tionality), organization (goal conflict among government departments, schools, hospitals,
members) and information (information as a universities, political parties, family, and so
commodity which can be purchased). More- on. It shows that organizations give their over, contract is as a means to control the uniqueness among collectivities, includes: firm just as the firm which controls the work- impersonality, hierarchy, size, goals, concern
er. Arranging and governing the contract is for efficiency, boundaries, control and nature
needed to make effective contract. During of work (Gabriel 1999:82).
the arranging and governing contract the re- In organization, the relationships look
lationship is appeared again, because the like complicated. There are people and system
process involves another individual and sys- which are integrated to run the organization.
tem to embed the contract. For example is internal organizational rela-
Contractual relations are the essence tionship between the principals and agents.
of the organization, not only with employees Principals are individual who delegate work
but also with suppliers, customers, creditors, to another party and some decisions making
and so on. The problem of agency costs and
Kumalasari, Sudarma, A Critical Perspective Towards...279
monitoring exists for all of these contracts, independent of whether there is joint pro- duction in their sense. Joint production can explain only a small fraction of the behav- ior of individuals associated with organiza- tion. The classical capitalist organization as
a contractual organization of inputs in which there is (a) joint input production, (b) several input owners, (c) one party who is common to all the contracts of the joint inputs, (d) who has rights to renegotiate any input’s contract independently of contracts with other input owners, (e) who holds the residual claim, and (f) who has the right to sell his contractual residual status.
Creating contract needs cost that is not cheap. Because, contract is not for free. Then, principal creates the nexus of contract to self-regulating, autonomous and economi-
cally efficient. Jensen and Meckling (1976:8) says that it is important to recognize that most organizations are simply legal fictions which serve as a nexus for a set of contract-
ing relationships among individuals. By le- gal fiction, it means the artificial construct under the law which allows certain organiza-
tions to be treated as individuals. The pri- vate corporation or firm is one of the example
of legal fiction which serves as a nexus for contracting relationships and which is also
characterized by the existence of divisible re- sidual claims on the assets and cash flows of
the organization which can generally be sold without permission of the other contracting individuals. Based on that reason, nexus of contract is as alternative to minimize the agency cost (Hunt III and Hogler 1990:449). So, there are a requirements for creating the contract: (1) there must be some potential divergence of interests among the parties of the contract , (2) the principal should have
at least some difficulties in determining the capabilities of the actions of the agents.
After creating the contract for the orga- nization, then there are organizational strat- egies which provide expectations and struc- ture of our behavior while we are engaged in that role. Because we cannot do act random- ly in organization (Keyton 2005:2). Organiza- tions are purposive system in which mem- bers behave as if their organizations have goals, although individual participants might personally feel indifferent toward those goals or even alienated from them (Aldrich 1999:3). Goal set by the owners or leaders must take
into account potential conflict of interest with other or other organizations and individu-
als supplying their resources. The strate- gies can be implemented if there is structure there to make sure that the strategies can
be run well. Therefore, there is organization structure as policies and symbols serving to support the behavior and attitude consid- ered appropriate, thus placing constrain on
Figure 6. The Nature of Agency
Jurnal Akuntansi Multiparadigma, Volume 4, Nomor 2, Agustus 2013, Hlm 269-285 the range of available impression manage-
ment behavior (Gadot and Drory 2006: 78). In addition, organization actually has a role to manage agency (agency structure) to self interest and self setting at microlevel setting. It is as a cooperative behavior to align goals toward risk. Strategies and structure in or- ganization influence new subject to learn is management behavior. Organizational be- havior is highly responsive to the interper- sonal cues and social aspects of the situation (Gadot and Drory 2996:78).
Abrahamsson (1993:xvi) asserts that organizational theory has three major prob-
lem areas. The first is the question of how the organization can be made efficient. The second is how it can be representative and how its activities can satisfy the interests and realize the goals of its mandator. In term
of improving the organization’s efficiency, the mandator appoints an executive group that is entrusted with the responsibility of working for his or her goals and interests.
Here, where the demands for efficiency and representativeness intersect, a new problem
area emerges: the problem of administrative groups that work for their own goals rath- er than those of their masters (often citing greater efficiency as the reason) and gradu- ally becoming the lower representatives of their mandatory interests. This is the prob- lem with bureaucracy.
Furthermore, organization needs to have bureaucracy to control between subjec- tive (personal desires) to be objective (to pro- tect within the bureaucracy from domination and to ensure the interest of constituents) (Hunt III and Hogler 1990:449). Bureaucracy must have attempt to accommodate personal
expression and self fulfillment to describe all forms of organizational rationales. Then why is bureaucracy so important? It is important
to attempt and define, distinguish and ren- der mutually compatible the subjective and objective aspect of life. Conflict in organiza- tions may not be interpreted in a meaning- ful way until we have an understanding of
the battle field in which these conflicts may
be resolved. Abrahamsson (1993:4) explains that bureaucracy as it is used in political sci- ence and sociology gives us an impressive number of applications of the terms from which to choose:
a. State administration: bureaucracy has been used for denoting the prominent po- sition given by the centralized state power
to permanently employed public officials and has been applied as an instrument of critique towards this state power.
b. Group of officials: bureaucracy can de- note a group of individuals who carry out administrative tasks or an administra- tion carried out by persons who are em-
ployed specifically for this type of job, re- gardless of whether it is public or private.
c. Administrative autocracy: an administra- tion in which the officials exert power to
implement their own interests. Bureaucracy is used, and has been used as a label for a multitude of fenomena that have very few components in common. It only signifies that a group of fenomena is some way related. Bureaucracy it is analyzed on this abstract level (the concepts of man- datory and executive) represents a tendency within an organization’s administration to disengage itself from thoseexceptionally in- terests that are supposed to work for the in- terest of those persons who are officials legit- imate of the administration. Administration means those organization officials who are responsible for the implementation of daily decisions and rules to which they are sub- jected or that they are expected to follow. It is common for almost all conceptualizations which are used for the analysis of the task execution for serving some persons or group of persons. Again, the administrative system is the concrete dimension of bureaucracy in the sense that it can be described through the use of various statistical and sociologi- cal methods of measurement. Organizational rationality, expressed in terms of the princi- ples of bureaucracy, is taken as a guarantee against discrimination premised on particu- laristic aspects of identity, such as ethnic- ity, gender, age, religion, and sexuality (Clegg 1992:4).
Agency is discourse or rhetoric embed- ded in collective behavior, social practice or political ideology that undermine the teleo- logical and normative possibilities of indi- vidual’s rational action. Furthermore, agen- cy has power and knowledge which express the underlying prejudgements or bias within discourses or knowledge that undermine the possibility of objectivity and create a symbio- sis between expertise and power. Moreover, agency reminds the government to have co- ercive power process to manage the country, because all behaviours are motivated by eco- nomic rationality. Adam Smith’s view toward the political economy is based on the pos-
Kumalasari, Sudarma, A Critical Perspective Towards...281 tulate of homo economicus: a simplified set
of assumptions about human action, seen as the result of the behavior of isolated in- dividuals, each of their own interests and making free and rational choices after hav- ing calculated the prospective costs and ben- efits (Martinelli and Smelser 1990:2). Then, accounting is born.
Accounting needs a person to run its system from identification process until
reporting. Every person has his or her own interests. Then it is important to search in- dependent outsider of the organization to review the performance there. This situation is already happened in classical era. Back into classical nineteenth-century, entrepre- neurs had little need for an accountant com- pared to modern era. They were accountable to the law of the land and their own con- sience, but beyond that they were sole judge of their performance wheter it was good or bad. The expanding influence of the audit- ing is derived in general from two sources: (1) the increasing complexity of the modern industrial world and its greater emphasis on accountability, meaning that the need of in- dividual refer to his or her actions. One man is referred to is actions to be judgeded y the standards he or she shares with others (Car- michael and Willingham 1985:9). (2) There was different interest between the owner or principal and agent. The contradiction was started from the interaction between two or more subjects (agents and principal), there- fore that is why they need auditor to check agent’s performance.
Auditing is a systematic an objective- process in obtaining and evaluating evidence regarding assertions about economic actions and events to determine the degree of cor- respondence between the assertions and established criteria and communicating the results to interested users (Louwers et.al. 2008:4). Auditing is an independent investi- gation of some particular activity. The situ- ation below explains more about auditing in the organization.
In this case, the role of auditor is to determine whether the reports prepared by the manager conform to the contract’s pro- vision (Messier et.al. 2006: 7). So, the audi-
tor’s verification of the financial information improve credibility to the report and reduces
information risk, potentially benefiting both the owner and the manager (Brink and Witt
1982: 3). Thus, agency relationship can be seen
in the organization because organizations share their feature of socially constructed boundaries with other types of collectivities. If there is any concentration of power in the contributions not only to the attainment of large-scale goals, but also some of the most troublesome actions affecting us (Aldrich 1999:7). Some of the negative consequences of organized action arise as by products in the normal course of business, whereas oth- ers are the result of callous disregard of the public interest. Figure 3.3 support the expla- nation that agency can solve the problem of the organizations.
Agency has process and system. The process focuses more on changing the or- ganization because process is temporal and emergent, contextual and patterning of inter- action between individual and groups within and across internal and external organiza- tion boundaries. System puts attention on the stability of the organization. As system as the system concerning with human socio behaviour, action is defined as coherent or stable slef organizing patterns of recursive or iterative, reproductive,interaction which can be conceived as forming entities/object that can be classified and examined in terms
of their hypothetical properties, boundaries level, interrelationship and continuity over time.
Critics in this chapter are firstly given by giving with serve the information of what
are the effects of agency theory toward the principal and agent. Revealing information about effects for both parties can support this research to come to the critics toward agency theory. Critic means one who forms and expresses judgments on the merit faults, value, or both matters.
Effects exist as the consequence of a cause of something else. Here, agency theory appearance has effect for the principal and agent. The power of the empirical research on agency theory to explain organizational fenomena is important to assess, particular- ly in light of the criticism that agency theory is "hard subject to be tested empirically since subject to empirical test since it rarely tries to explain actual events" (Eisenhardt 1989:58). While principal and agent are the actors who perform their job based on agency theory in term of achieving their goals. Jensen and Meckling define an agency relationship as “a contract under which one or more persons (the principal(s)) engage another person (the agent) to perform some service on their be-
Jurnal Akuntansi Multiparadigma, Volume 4, Nomor 2, Agustus 2013, Hlm 269-285
Figure 7. The Function of Agency
half which involves delegating some decision leaders who can drive change. Thus, agency making authority to the agent (Jensen and
(when it turns to be theory) should treat the Meckling 1976:5).