Cohesiveness and goals in agency networks: Explaining conflict and cooperation

This paper examines principal and agent networks. We focus on networks because business research has placed far greater emphasis on the agency problem at the individual level. Our interest is in exploring the agency relationship at the group or network level. There are many variables at the group or network level which are absent when analyzing agency relationships at the individual level. Traditional theories of finance and economics do not adequately address or explain a host of behaviors that are inherent in human interactions that constitute organizational life. We include a sociological or behavioral approach in understanding this complex relationship. Using cohesiveness and shared goals as antecedents, we develop a theoretical model that predicts a range of relationship outcomes between principals and agents, as well as their impact on organizational goals. We explain that a range of relationships – including conflict, domination, exploitation, collaboration, and cooperation – is possible when networks of principals and agents interact.We argue that the social context is a key determinant of the relationship between actors in a network, and it has an important role in impacting cohesiveness and goal mutuality. The degree of cohesiveness within and between networks, and the extent to which goals are shared or are in conflict are the principal predictor variables we examine. We posit that cohesiveness and shared goals are necessary and sufficient conditions for agency problems between networks to be alleviated. Both necessary and sufficient conditions need to be met in order to overcome the problems of agency. The relationships we examine through the model include cooperation, collaboration, domination, opportunism, exploitation, and conflict. We present a number of propositions that theorize on the nature of the agency relationship and their impact on organizational goals. Implications for research and practice are also discussed.