Implication of agency theory in MCSs Essay


The shared values and norms a society holds affectionately have been found to impact the attack to which direction controls are instituted and activities coordinated within such society ( Schuleze et al. , 2001 ) Anwar and Jabnoun ( 2006 ) depict these shared values and norms as civilization. They argue that shared values distinguish the behavioral forms of one group from another. Many academic articles have been directed at how these shared values and norms of different societies are impacting the establishment of direction control systems ( MCSs ) in organisations ( Armstrong, 1991 ; Ekanayake, 2004 ; Hofstede, 1980 ; Sharp and Salter, 1997 ; Lau and Buckland, 2000 ; Harrison and Mackinnon, 1999 ; Hoppe, 2004, Vance et al. , 1992 ; HassabElnaby and Mosebach, 2005 ; Van der Stede, 2002 ; Kessapidou and Varsakelis, 2003 ) .

MCS has been defined by Lebas and Weigenstein ( 1986 ) as ‘the procedure by which an organisation ensures that its sub-units act in a co-ordinated and concerted manner, so that resources will be obtained and optimally allocated in order to accomplish the organisation ‘s ends ‘ . MCS harmonizing to ( Ekanayake, 2004 ) are instituted because of the sensed bureau jobs that exist between agents ( directors ) and principals ( stockholders ) . Agency jobs are based on the premiss that agents would instead move in their opportunism than to profit the principal ( Armstrong, 1991 ; Eisenhardt, 1989 ) . Many of the articles look intoing the impact of civilization on direction control systems have supported the statement that civilization has a important impact on direction control systems ( Hofstede, 1980 ; Ekanayake, 2004, HassabElnaby and Mosebach, 2005 ; Lau and Buckland, 2000 ; Vance et al. , 1992 ; Harrison and Mackinnon, 1999 ; Kranias, 2000 ) . However, Granlund and Lukka ( 1998 ) argue that there is now a inclination towards ‘convergence ‘ of direction controls systems fostered by globalisation as against the support for divergency posed by cultural differences ( Yoshikawa and Rasheed, 2009 ; Harrison and Makinnon, 1999 ; Shields, 1998 ) .

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The intent of this paper is to critically measure the impact of national civilization on direction control systems. To accomplish this nonsubjective both sides of the statements as have been presented by relevant literature would be criticized. As directors are said to be self focussed ( Armstrong, 1991 ; Eisenhardt, 1989 ) instead than organizationally focused, the bureau theory that supports this statement would be discussed. Although Chow et al. , ( 1999 ) pointed out the being of other models developed by Trompenaars ( 1994 ) and Schwatz ( 1994 ) , Hofstede ‘s work forms the footing for most research on the relationship between MCSs and civilization ( Hoppe, 2004 ) , therefore would be discussed and critiqued.

The statements in support of the impact of national civilization on MCSs would besides be discussed showing assorted supports. It would be followed with a treatment of the assorted positions authors have presented in support of convergence of patterns instead than divergency. The work would be rounded with reasoning statements following the assorted points of positions that authors have presented and the sentiment of the current work.

Deduction of bureau theory in MCSs

Merchant and Van der Stede ( 2007 ) , defined direction control systems ( MCS ) in a wide sense as an incarnation of all that directors do to vouch the successful execution of their organisational schemes and programs. It is regarded as a nucleus map of direction. Harrison and McKinnon ( 1999, p. 100 ) defined it as “ the set of mechanisms that assist organisation to accomplish its aims ” . Davila, Foster and Li ( 2009 ) , are of the sentiment that MCS enhances invention. Devine ; O’clock and Rooney ( 2000 ) suggest it is of import for direction control systems to take awareness of the influence of national civilization. Businesss stand to profit from following and accommodating direction manner and control systems to national civilization ( Divine, O’Clock and Rooney, 2000 ) . Management controls are instituted because of the ‘moral jeopardies ‘ inherent in the bureau relationship that exist between the principal ( s ) and the agent ( s ) ( Ekankanye, 2004 ) .

A good apprehension of the bureau relationship is necessary for the design of control systems since direction control systems are intended to pull off relationships in an optimum manner so as to accomplish organisational aims ( Ekanayake, 2004 ) . When the contractual relationship between the principal and agent are based on verifiable results by agencies of available information, the agents are more likely to move in the involvement of the principal ( Eisenhardt, 1989 ) . This would assist in work outing two chief jobs of: determining whether the agent ( s ) will move suitably in the principal ‘s involvement and whether the perceptual experience of hazard would be in chief ‘s involvement ( Eisenhardt, 1989 ) . Alternatively, ‘social/cultural controls ( Ekanayake, 2004 ) or what Ouchi ( 1980 ) , described as ‘clan control ‘ could function in alining the ends of principals and agents.

The position point presented by the bureau theory enhance better apprehension of full direction control system of an organisation, which may include internal controls, information processing and systems public presentation measuring, rating and compensation system every bit good as audit ( Ekanayake, 2004 ) . Eisenhardt ( 1989 ) opined that bureau theory implies direction controls can be used to supervise agent ( s ) egoistic behavior. Information systems such as budgeting, direction coverage, surveillance, and direction observation are critical facets of control that could be better understood through the bureau theory ( Eisenhardt, 1989 ) . Baiman ( 1990 ) suggest that bureau theory is more utile when the inducement system comprises both public presentation rating and wages maps.

Hofstede ( 1980 ) , looking at the bureau relationship from national civilization point of position asserted that there is a important volume of grounds to separate between agents in the Asiatic cultural scene and Western agents. Sharp and Salter ( 1997 ) proving the catholicity of bureau and chance theory in explicating escalation determinations for losing capital outgo undertakings showed that the assorted factors tested were found to be smaller in Asia than in North America. The decision was that Asiatic directors are less self-interest inclined ( Sharp and Salter, 1997 ) .

National Culture and impact on direction control systems ( MNCs ) .

Majority of researches associating MCSs and national civilization have been based on the model of civilization as proposed by Hofstede ( 1980 ) and are comparatively new, holding been on the topographic point visible radiation for merely about 15-20 old ages ( Harrison and McKinnon, 1999 ) . Hofstede ( 2001, p.9 ) defined civilization as “ the corporate scheduling of the head that distinguishes the members of one group of people from another ” . His research was from a psychological position and investigated values that are work-related on IBM employees across their subordinates all over the universe. Although the study he conducted was non originally designed for comparing across states, the analysis showed important similarities in values for people within national civilizations and important difference in other national civilizations ( Harrison and McKinnon, 1999 ) . His statement was that values are cardinal to civilization ( Harrison and McKinnon, 1999 ) . In his taxonomy called ‘dimensions of civilization ‘ , Hofstede ( 1980 ) disintegrated civilization into four units, that is: power distance ( PD ) , individualism-collectivism ( IDV ) masculinity- muliebrity ( MAs ) and uncertainness turning away ( UA ) . Consecutive survey included another dimension, ‘long-term orientation ‘ ( Hofstede, 1983 ) .

In his work, Hofstede rated 50 states based on his parametric quantities as identified above. The first of which is power distance ( PD ) relates to the manner in which people accept the unequal distribution of power in organisations and establishments. Societies with high power distance give credence to position differences created by wealth, societal position and place, and believe that it is ideal for people with higher societal standing to command regard, rights and privileges. This runs contrary to people in low power distance societies where an ambiance of equality is created ( Devine, O’Clock and Rooney, 2000 ) . Associating this to some set of controls as was done by ( Chow, Shields and Wu, 1999 ) suggest that the deduction of low power distance is an disposition towards equality in a perpendicular relationship. Peoples in this sort of civilization like holding to lend to the determination devising procedure, whereas in high power distance civilizations, higher-ups make determinations without subsidiaries inputs ( Chow, Shields, and Wu, 1999 ) . In mention to active engagement, ( Hofstede 1980 ) and subsequent work in 1983, 84 and 1991, implies that people in lower power distance societies would defy being inactive to higher-ups rating and active engagement in budgeting. Devine, O’Clock and Rooney, ( 2000 ) suggest that the wages system of societies with high power distance be set at troughs discretion since he has the power ( created by the spread ) to make so.

Bolshevism as a societal form requires persons seeing themselves as portion of a whole before ego. In other words, persons give precedence to the values, beliefs and norms imposed on them by the whole or collectives, and are ready to prosecute the ends of the collectives against personal ends ( Harrison and McKinnon, 1999 ) . Following Hofstede ‘s evaluation, they seem to be a contrary of form between power distance tonss and individualism-collectivism mark. In relation to the controllability rule as concerns employees public presentation rating, individuality inclined civilizations would hold a desire for answerability of ain actions and would prefer a say on their public presentation rating standards ( Chow, Shields and Wu, 1999 ) . Devine, O’Clock and Rooney, 2000 suggest that in a extremely individualistic environment, wages system should be designed to honor single attempts of subsidiaries, while the contrast is deemed more appropriate for low individualistic society. In the sentiment of Devine, O’Clock and Rooney ( 2000 ) , directors in an individualistic society would most likely prefer budgeting system that allows for the usage of enterprises and motive that gives more liberty.

Uncertainty turning away is related to peoples ‘ reaction to ambiguity. Peoples in high uncertainness civilizations regard it as a jeopardy which brings apprehensiveness and force per unit area. Peoples in this state of affairs attempt to restrict uncertainness through statute laws, devotedness to spiritual beliefs, and institutional activities ( Harrison and McKinnon, 1999 ) . On the other manus, people in low uncertainness turning away civilizations accept life with all the uncertainnesss it brings and therefore are less dying about what uncertainnesss may bechance them ( Hofstede, 1980 ) .

The inclination towards specific gender stereotype in a society is referred to as maleness versus muliebrity. Societies high in maleness topographic point value on competition, assertiveness and unfastened presentation of accomplishments. Whereas in societies low in maleness, i.e. feminine societies, respects is given to personal relationship, self-doubt in accomplishments, less value for materiality, and being supportive of one another ( Harrison and McKinnon, 1999 ) . Fiscal wagess related public presentation requires that existent public presentation be measured against budgeted in the allocation of wages ( Chow, 1985 ) . Preference to this control is expected in a society higher in the graduated table of maleness. A civilization that has a low mark on maleness would most sooner welcome an rating as a group and a wages system that comprises built-in values ( Devine, O’Clock and Rooney, 2000 ) . Chow et al. , ( 1999 ) nevertheless noted that this disposition stress differences in wage across workers within organisations which runs contrary to civilizations with low evaluation on individuality.

However, Hofstede ‘s work has been criticized for being psychologically based and disregarding of import literatures and positions on civilization, non taking awareness of sub-cultures within national civilization, grouping states as homogenous civilization, concentrating on in-between directors in one house, steps being disused and cut downing the complexness of civilization into set of aggregative steps ( Harrison and McKinnon, 1999 ) . Hofstede ‘s work has besides been criticized for missing causal relationship backed by statistical grounds which has remained a major failing to the decisions that civilization influences MCS ( Geppert, Matten and Williams ( 2002 ) .

National cultural properties have effects on the set of attacks to command which is instituted ( Labas and Weigenestein ( 1986 ) . HassabElbany and Mosebach ( 2004, p.29 ) look intoing the civilization ‘s effects in commanding bureau cost concluded that ‘aspects of state ‘s civilization cause either opposition or credence of the method used to command bureau cost ‘ . While an attack may work efficaciously in a national civilization, it may bring forth dysfunctional behaviors in others to which they may be implemented ( Labas and Weigenestein ( 1986 ) . Lere and Portz ( 2005 ) noted that ‘differences in civilization can impact the rightness and effectivity of the patterns that make up direction control systems ” . They assert that although several surveies have examined cultural differences, one of the most comprehensive has been that conducted by Hofstede ( 1980 ) . In their sentiment, when MSCs are designed, certain points should be noted, this includes observing that:

  • Differences in civilization can impact effectivity of patterns that add up to do the control system.
  • That in puting up bench-marks, the civilization of the company should be given precedence.
  • That extra preparation may be required to bridge the spread between MCSs and local civilization.

Offermann and Helpmann ( 1997 ) are of the sentiment that as concerns search for better chances set uping their outfits and researching market chances globally, the demand for the apprehension of the cultural impacts of states in which constitutions are based becomes of import. Disparities in national civilization may do directors to construe or react otherwise to the same strategic issue ( Schneider and Meyer, 1991 ) . Businesss that adopt and adapt direction manner and control systems to national civilization base to profit from the procedure. It is of import for MNCs to take awareness of the influence of national civilization ( Devine, O’Clock and Rooney, 2000 ) .

The deduction of cultural dimensions in the planning and design of control systems should non be taken lightly. Assorted dimensions of civilization have suggestive results on the budget procedure, wages systems and therefore the controls that ate likely to come out successfully ( Devine, O’Clock and Roooney, 2000 ) . Surveies conducted by Vance et Al. ( 1992 ) showed a important difference between the Asiatic states examined in footings of impact of national civilization on MCSs and their US opposite number. These differences were besides observed between the Asiatic states examined. In the sentiment of Hoppe ( 2004 ) , placing the cultural differences which persons or co-workers in organisations hold has proved to be really utile in the result of the quality of services or merchandises. Anwar and Jabnoun ( 2006 ) assert that national civilization influences organisational civilization and posses a great deduction of the efficiency of an organisation. The mode of higher-ups rating of subsidiaries ( which may be impacted by national civilization attributes ) significantly impacts the occupation public presentation and attitude displayed by subsidiaries ( Lau and Buckland, 2000 ) .

Convergence of direction accounting patterns

The statements on the divergency and convergence of direction accounting patterns have been a major mystery among research workers of planetary direction ( Granlund and Lukka, 1998 ) . While much attending has been paid to issues around divergency, it has non been rather so with the issues of convergence. The defiency of analysis of issues about convergence of direction accounting patterns could intend terrible restriction as the result may present a serious challenge to the survey of national civilization differences in relation to direction accounting ( Granlund and Lukka, 1998 ; Goddard, 1997 ; Dent, 1991 ) .

Convergence involves the embracing of western political orientations as states develop into industrialisation, it implies a considerable alteration in values towards ‘free-market capitalist economy ‘ ( Ralston, 1997 ) . Calhoun, Teng and Cheon ( 2002 ) noted that the development of information engineering has chiefly come from the West, and in the class of development western civilization has been embedded into the engineerings, hence credence of these engineerings or their rejection by the receiving side are influenced by civilization. Evidence supports convergence of direction accounting patterns particularly in footings of techniques and engineerings across European states and other states ( Shields, 1998 ) . Although it is possible to indicate out important differences in direction accounting patterns at the house degree within states necessitated by factors like civilization and or authorities ordinances, grounds supports convergence playing more function, i.e. drivers of convergence are outweighing divergency ( Grandlund and Lukka, 1998 ) .

However, even though it has been acknowledged that there is national convergence of direction accounting patterns globally, there exists divergency in patterns across industries within states and across national boundaries, this leads to state there is a decreasing difference in direction accounting patterns across states than there is across industries that operate within states ( Shields, 1998 ; Granlund and Lukka, 1998 ) .

Convergence may be in signifier and in map ( Yoshikawa and Rasheed, 2009, Gilson, 2004 ) . Similarity in legal model and establishments is associated with convergence in signifier, while convergence in map is when different regulations and establishments apply to different states but still able to transport out the same map ( Yoshikawa and Rasheed, 2009 ) . Convergence has besides been classified as ‘de-jure ‘ and ‘de- facto ‘ convergence by Khanna, Kogan and Palepu ( 2006 ) . It is de-jure convergence when similar corporate administration Torahs apply to different states, and de-fact convergence when there is existent convergence in patterns.

National convergence in direction accounting patterns has been observed for a long period. Nipponese houses following direction accounting patterns from America and Germany dates back to periods before the Second World War. American direction accounting techniques have besides been found to hold influence on France and Germany ( Shields, 1998 ) . However, Yoshikawa and Rasheed ( 2009 ) cautiousness that when discoursing convergence, it is of import to cognize precisely what way the convergence is taking. For case, one may necessitate to happen out if the convergence is towards the Anglo-American patterns, the Nipponese manner, towards a cardinal place or an wholly new way.

Evidence of convergence has been observed among states that are actively take parting in the planetary economic system. Granlund and Lukka, ( 1998 ) identified and classified the drivers of convergence into four wide groups, that is ; economic force per unit area, coercive force per unit areas, normative force per unit areas and mimetic procedures. Some of the identified drivers of convergence that autumn into this group are:

  • High degree of competition by houses ( Shield, 1998 ; Grandlundand Lukka, 1998 ; Yoshikwawa and Rasheed, 2009 ) .
  • The being of comparable engineerings and techniques across states ( Shields, 1998 ) .
  • Easier entree to communicating and transit which enabled the infiltration of direction accounting techniques and information around the universe ( Shields, 1998 ) .
  • Education ; broad usage of the same survey stuffs ( Grandlund and Lukka, 1998 ; Shields, 1998 ) .
  • The prominence of planetary consultancy houses who ‘s similarities of methods and techniques have aided convergence ( Shields, 1998 ) .
  • Multinationals may besides enforce their patterns and policies in their operations worldwide ( Shields, 1998 ) .

However, Shields ( 1998 ) posits that the same drivers of national convergence in direction accounting patterns would be responsible for driving divergency at industries degree of operation.


Assorted groundss provided by researches assert that national civilization impacts the execution of MCSs. It has been suggested that a proper apprehension of national civilization is of import in their design. MNCs are intended to cut down the bureau jobs that exist in corporations as a consequence of differences in precedences between the agent ( s ) and the principal ( s ) . Most of the work measuring the impact national civilization has on MNCs have been based on the work of Hofstede ( 1980 ) . However Harrison and McKinnon ( 1999 ) knock Hofstede ‘s work for being psychologically based and disregarding of import literatures and positions on civilization in other Fieldss and utilizing a set of steps to measure civilization.

Anwar and Jabnoun ( 2006 ) argue that in the existent sense of the World, ‘national civilization spreads out along the measuring graduated tables ‘ and hence hard to state a society is either feminine or masculine. Although bulk of the surveies conducted have asserted that there is a divergency in national civilization impact MCSs, the work of Shields ( 1998 ) every bit good as Granlund and Lukka ( 1998 ) among others argue that there is a thrust towards convergence in patterns fostered by certain factors like globalisation, instruction, consultancy services, broad usage of the same beginnings of survey stuff, technological invention among others.


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