A Critical Perspective Towards Agency Theory
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A CRITICAL PERSPECTIVE TOWARDS AGENCY THEORY Kartika Putri Kumalasari1) Made Sudarma2) 1)Ariwiguna & Associate, Jl. Pudak No 10, Malang, 65141. 2)Brawijaya University,Jl. MT. Haryono 165, Malang, 65145 Surel: [email protected] 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 JAMAL stand the nature, function, and sults of such thinking. Depending Volume 4 Nomor 2 how agency works. Because, in on the context, the results may for Halaman 165-329 Malang, Agustus 2013 reality, agency theory has power example include generalized expla- ISSN 2086-7603 e-ISSN 2089-5879 if it were the authority that sup- nations of how nature works. The ports the capability of the princi- term "theory" refers to scientific 269 270 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 is used to understand and answer the issue. owner or principal and also with agent. The Macionis (2007:39) says that critical sociol- contradiction was started from the interac- ogy is the study of society that focuses on the tion between two or more subjects (agents need for social change. Keesey (2003:3) ex- and principal), therefore auditor is needed to plains that to study criticism systematically, check the agent’s performance. 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.