Introduction

Abstract In an agency relationship, one party acts on behalf of another. It is

curious that a concept that could not be more profoundly sociological does not have a
niche in the sociological literature. This essay begins with the economics paradigm of
agency theory, which casts a very long shadow over the social sciences, and then traces
how these ideas diffuse to and are transformed (if at all) in the scholarship produced
in business schools, political science, law, and sociology. I cut a swathe through the
social fabric where agency relationships are especially prevalent and examine some of
the institutions, roles, forms of social organization, deviance, and strategies of social
control that deliver agency and respond to its vulnerabilities, and I consider their impact.
Finally,

This essay begins with the economics paradigm of agency theory, which casts a very long
shadow over the social sciences, and then traces how these ideas diffuse to and are
transformed (if at all) in the scholarship produced
in business schools, political science, law, and sociology. Finally, I suggest how sociology
might make better use of and contribute to agency theory.

Over the last decade, agency theory has emerged as the dominant paradigmin the financial economics
literature (Jensen and Meckling, 1976; Ross, 1973 ,As developed in that literature, agency theory has
been primarily concerned with the relationsbip between managers and stockholders. However,
recently authors in the management field have begun to explore the implications that agency theory
might have for the disciplines of organizational behaviour, organizational theory, and strategic
management {e.g., Eisenhardt, 1985, 1988, 1989; Kosnik, 1987).
Taking agency theory and stakeholder theory as points of departure, the purpose of this article is to
propose a paradigm that helps explain the following: (1) certain aspects of a firm's strategic
behaviour; (2) the structure of management-stakeholder contracts; (3) the form taken by the
institutional structures that monitor and enforce contracts between managers and other stakeholhers;
and (4) the evolutionary process that shapes both management-stakeholder contracts and the
institutional structures that

[The term stakeholders refers to groups of constituents who have a legitimate claim on the firm (Freeman, 1984; Pearce,
1982)].

Stockholders provide the firm with capital. In exchange, they expect the firm to maximize the riskadjusted return on their investment. Creditors provide the firm with finance and in exchange expect
their loans to be repaid on schedule. Managers and employees provide the firm with time, skills, and
human capital commitments. In exchange, they expect fair income and adequate working conditions.
Customers supply the firm with revenues and expect value for money in exchange. Suppliers provide
the firm with inputs and .seek fair prices and dependable buyers in exchange. Local communities
provide the firm with locations, a local infrastructure, and perhaps favourable tax treatment. In
exchange, they expect corporate citizens who enhance and/or do not damage the quality of life. The
general public, as tax payers, provides the firm with a national infrastructure. In exchange, they
expect corporate citizens who enhance and/or do not damage the quality of life and do not violate the
rules of the game established by the public through their legislative agents.