Anti-bribery control and incentives as agency theory approaches

• Author: Fabian Teichmann
• Position: Att orney-at-Law and Public Notary, Teichmann International (Schweiz) AG
• Pages: 9-18

Vol. 3 No. 3

November 2017

ISSN 2410-3918

Acces online at www.iipccl.org

9

Academic Journal of Business, Administration, Law and Social Sciences

IIPCCL Publishing, Graz-Austria

Anti-bribery control and incentives as agency theory approaches

Dr. Dr. Fabian Teichmann

A orney-at-Law and Public Notary

Teichmann International (Schweiz) AG

Abstract

This article takes an agency theory approach towards bribery in multinational corporations.

In particular, it is advocated that incentives could help to align the interests of principals

and agents and reduce information asymmetries. This could help to increase anti-bribery

compliance and hence support the fi ght against corruption in Eastern Europe.

Keywords: Bribery, Corruption, Agency Theory, Compliance.

Introduction

Agency theory is theoretical approach that assumes that humans are self-interested,

and that “principals” and “agents” have di ering interests (Eisenhardt, 1989a: 59). It is

a suitable theoretical approach for this study as it takes both information asymmetry

and incentives into account. When it comes to bribery, employees’ actions are o en

unobservable to multinational corporations’ shareholders (Wang, 1997: 72). It is

assumed that the shareholder (principal) and the employees (agents) have confl icting

interests and that their relationship is governed by a contract (Eisenhardt, 1989a: 58

f.). In this context, agency theory is o en used to reduce uncertainty (Nilakant & Rao,

1994: 667).

Agency theory’s key initiative is to improve the e cient organization of information

and to reduce risk-bearing costs. The unit of analysis is usually considered to be

a contract between principals and agents (Eisenhardt, 1989a: 59). For the purpose

of this study, employment contracts, which typically also include compensation

schemes, are considered the unit of analysis. This is because most incentive schemes

in multinational corporations are integrated into individual employee contracts.

In agency theory-based approaches, it is generally presumed that humans are self-

interested, risk averse, and characterized by bounded rationality (Eisenhardt, 1989a:

58). Agents are thought to care more about their own interests than about the ones of

their principals, and may have a di erent level of risk awareness. While a principal

may be against paying bribes, agents might be willing to do so if it benefi ts them. This

is particularly true if an agent’s expected utility is high enough and the principal is

forced to carry the risk of the agent’s misbehavior.

Furthermore, according to this viewpoint, relationships are generally marked by

moral hazard, adverse selection, and risk sharing (Ross, 1973: 134). Anti-bribery

incentive systems are concerned with all three of these aspects. They most probably

force the agent to act in the principal’s best interest. Additionally, agents inclined