I find the book Absentee Ownership by Thorstein Veblen, in true essence, just a reflection of what we today call “The Principal-Agent Relationship.” He describes Moral Hazard and Adverse Selection through a few examples. But what I find the most compelling is:
The larger the proportion of the community’s wealth and income which he has taken over, the larger the deference and imputation of merit imputed to him, and the larger and graver that affable condescension and stately benevolence that habitually adorn the character of the larger captains of solvency. There is no branch or department of the humanities in which the substantial absentee owner is not competent to act as guide, philosopher and friend, whether in his own conceit or in the estimation of his underlying population, – in art and literature, in church and state, in science and education, in law and morals, – and the underlying population is well content.
Veblen argues that as a principal, who has given decision making abilities to the agent, should himself first be competent, and there are no such cases where they aren’t found to be incompetent. There is, of course, the case of Public Sector Companies, where this issue is different.
Definition: Agency dilemma or the agency problem occurs when one person or entity (the “agent”), is able to make decisions and/or take actions on behalf of, or that impact, another person or entity: the “principal.”
As a leader facing the agency dilemma every day, I have learned one important lesson which is applicable in personal and professional life too: “Let Go.” In our teams, we have extremely talented members and the danger to this is they will have their own ideas and thought processes. As a leader, if one cannot give them the latitude and room for creativity, then outcomes may not be very great! The same applies to our families too.
Here’s a very touching advertisement from a major clothing brand in India. Enjoy Cheers!