Agency theory and nancial
crime: the paradox of the
Faculté d’administration, Université de Sherbrooke, Sherbrooke, Canada
Purpose – The purpose of this paper is to philosophically address the issue of managerial
opportunism and to describe the paradox of the opportunistic executive, particularly when the CEO
could be considered as a “criminal-to-be”.
Design/methodology/approach – It will be seen to what extent governance mechanisms really
contribute to prevent managerial opportunism, particularly through compensation packages (“nancial
carrots”). Then, Oliver E. Williamson’s viewpoint will be analyzed on opportunism, as his theory has
largely inuenced the way agency theories actually dene managerial opportunism. Williamson was
thinking opportunism without referring to philosophical works. The gap in exploring three basic types
of opportunism will be lled: the Smithian egoist, the Hobbesian egoist and the Machiavellian egoist.
Findings – The Smithian egoist tries to reach an equilibrium between self-interest and compassion,
while the Hobbesian egoist is motivated by self-interest, desire of power and the attitude of prudence.
The Machiavellian egoist is always searching for power and makes followers’ fear arising. The way
governance mechanisms and structures should be designed and implemented could be quite different if
the CEO actually behaves as a Smithian, Hobbesian or Machiavellian egoist. CEO’s propensity to
commit nancial crime could largely vary from one type to another: low risk (Smithian egoist), medium
risk (Hobbesian egoist) or high risk (Machiavellian egoist).
Research limitation/implications – Smith’s, Hobbes’ and Machiavelli’s philosophy was chosen
because the agency theory sometimes refers to it, when dening the notion of opportunism. Other
philosophies could also be analyzed to see to what extent they are opening the door to opportunism (for
Originality/value – The paper analyzes managerial opportunism from a philosophical viewpoint.
Whether executives are Smithian, Hobbesian or Machiavellian egoists, their opportunism cannot give
birth to similar behaviors.
Keywords Financial crime, Adam Smith, Agency theory, Managerial opportunism,
Nicolo Machiavelli, Thomas Hobbes
Paper type Conceptual paper
Agency theory denes agency costs as transaction costs from the intra-organizational
context. Transaction cost theory rather puts the emphasis on the inter-organizational
context (relationships with business partners). Both theories actually share the same
belief: there is a signicant threat that people could behave in an opportunistic way. In
both cases, there is an a priori assertion that rms need to have governance structures
and control systems to avoid opportunism. Executives could try to get their annual
bonus at any cost, including opportunistic decisions: for instance, executives could favor
business contracts that have advantageous consequences in the short-term (particularly
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Journalof Financial Crime
Vol.23 No. 3, 2016
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