Part Three
Chapter 8 Discussion
9.2 Stewards not Agents?
9.2.5 There is no Panacea
Government agencies need to be prepared to share decision-making (Whitaker et al., 2002). For the Community and Voluntary Sector Working Party (2001) this meant providing genuine opportunities to comment on policy and involvement in the early stages of policy development. Respondents’ perceptions of the contracting process as a ‘take it or leave it’ one suggest this is a long way off.
Time is also needed to develop shared expectations and sensible performance measures. Experimentation will be needed (Whitaker et al., 2002). However, as demonstrated by the example of a contract in the recent Auditor General’s report on the government contracting processes, practices currently do not result in shared expectations:
There was no ‘meeting of minds’ on the part of the Ministry and [the voluntary organisation it contracted with] as to the length and expected outcomes of the contract. The parties were confused over the length of the contract and the expected outcomes during the term of the contract (Office of the Auditor General, 2003: 59).
The enthusiasm with which some of its proponents advocate this approach makes their claims seem too good to be true. As Arthurs and Busentiz (2003: 155) argue
‘stewardship theory paints an excessively rosy picture of the steward.’
Government agencies need to make voluntary organisations accountable for taxpayers’ money. They need to be seen to be in control (Taylor, 1996a; Dicke, 2002). As guardians of the public purse, public agencies take what can be considered a risk-adverse approach. The mechanisms of external control, such as monitoring and reporting, can be seen to provide the needed assurance to both Ministers and the public that taxpayers’ money is being used effectively (Davis et al., 1997).
Being accountable for taxpayers’ dollars is one example of the different set of pressures that officials operate within. Another set originates from the three-year political cycle and the associated changes in policy and programmes. Such change will make it difficult for officials to establish committed long-term relationships with voluntary organisations.
A regime built on the assumptions that providers should be allowed a high level of discretion is unlikely to be feasible in this context. Public accountability systems can be seen as a trade-off between discretion and assumed innovation and efficiency, on one hand, and the need for control, on the other (Considine, 2002). Increased control comes at an increased cost: costs could be in terms of the resources need to monitor behaviour, as well as the potential loses from reduced levels of innovation and the improvements in performance that can result from such innovation (Mayston, 1993).
Discretion and soft accountability systems, versus control and hard accountability systems, and the trade-offs needed represent an intractable problem. The debate about the respective benefits of internal responsibility (soft accountability) and external (hard accountability) controls has raged for decades, since it was originated by the seminal exchange between Friedrich and Finer in the 1940s.
At the heart of the debate is the issue of how much discretion agencies can allow their providers; how far can they trust them? For Das and Teng (1998), finding the
balance between control and trust is the key question for any alliance. Both come at a cost to the organisations involved:
The selection, development, and implementation of control mechanisms, such as budgets, planning systems, and cost-accounting systems can be expensive … Trust is not free either; trust building is a planned activity and takes considerable resources from organisations over time (Das and Teng, 1998: 496).
For a relationship based on trust to develop, government agencies and voluntary organisations will need to become familiar with each other. Bigely and Pearce (1998) argue that trusting relationships are only formed between actors who have established close bonds with one another. Bhattacharya and Devinney (1998) add additional prerequisites needed for trust. The interests of the two parties must be aligned. As previous discussions of agency theory have shown, when each party is self-interested and working towards different goals, control becomes a central feature of the relationship, at the expense or as a substitute for trust (de Leon, 2003). For trust to develop in a relationship a sense of shared higher level purpose is needed.
Trust is also most likely to eventuate when parties have taken care and time in choosing their partners.
However, in trusting voluntary organisations, Sheppard and Sherman (1998) note government agencies will be implicitly accepting the risks associated with being dependent on them for the delivery of services. Trust implicitly involves loosening mechanisms of control and relying on voluntary organisations to deliver services of an acceptable quality. Such interdependence increases the vulnerability of government agencies (particularly to poor performance by voluntary organisations) and increases the potential for betrayal or harm from voluntary organisations (such as the potential for being defrauded) (Bigely and Pearce, 1998). Such risk is not easily absorbed within public management systems and by political masters.
However, the seeds of enhanced discretion, soft accountability and intrinsic accountability mechanisms may already be present in the current public management system. The reforms of the 1980s and 90s emphasised the role of consumers in monitoring service quality. Through the exercise of consumer choice and the
development of mechanisms for complaint, service quality was expected to increase.
Providers, be they government agencies or voluntary organisations, were expected to self-monitor their performance in terms of customer satisfaction. If clients were to chose alternative services, funding would be reduced to the non-selected providers.
While this research has shown that the managers and board members of the voluntary organisations studied were not responsive to their clients needs, this aspect of the public management system could be better activated. Internal self-monitoring of performance by providers was recognised by some as more effective than administrative allocation via regulation and inspection (Ormsby, 1998).
Indeed, another feature of the original reforms was the mantra ‘let the managers manage’ so recognising the importance of discretion. As Norman (2003: 33) describes, the pre-reform public management system focused on the hierarchical control of managerial actions:
Control is a central preoccupation in the delivery of public services, because public agencies are ‘invested with awesome powers of compulsion – to tax, regulate, inspect, arrest – and attractive powers of reward – to subsidise, purchase, and protect. Typically they [public agencies] exercise these powers as monopolists, immune from competition. To make them accountable, we enshroud them in a maze of laws, regulations and court rulings; to keep them responsive, we expose them to access by endless reporters, lawyers, committees and investigators’ ... The solution to this problem of public sector control for much of a century was to deliver services through hierarchical bureaucracies, responsibly directed to elected representatives.
Post reform, managers were to be freed from the web of rules and regulations that governed their actions, allowed to make decisions and then held accountable for results. Efficiencies were thought to be generated from allowing managers discretion to make decisions about the service delivery (Boston et al., 1996).
The assumptions of stewardship theory may not, therefore, be so removed from current public management realities. Discretion, soft accountability and intrinsic accountability mechanisms are present as threads in the current system. Indeed,
Barnett and Newberry (2002) conclude that such mechanisms are relied upon for performance measurement and management in the mental health sector.
Enduring Goal Alignment
Questions must also be raised about the depth and sustainability of goal alignment.
While the managers of voluntary organisations and officials may agree on high level outcomes, differences about service delivery may override consensus. Differences may arise from the conflicting values of the respective parties. Research suggests officials may prioritise adhering to rules and regulations more than their voluntary sector counterparts (Rasmussen et al., 2003). If, for example, voluntary sector managers were contravening rules considered by officials as crucial, there is potential for the relationship to collapse. When consensus is gone in a stewardship relationship, there is in effect, no workable relationship left. Ongoing frustrations about funding may also block collaboration.
Agency Theory is not all ‘Bad’: Stewardship Theory is not all ‘Good’
Agency theory has generated a number of important insights for public administration researchers, such as the importance of information systems (Eisenhardt, 1989a). The current agendas of agency theorists may also provide new insights. Researchers considering corporate governance and issues of separation and control are searching for efficient solutions for conflicts of interest, so to reduce the need for intense monitoring (Arthur et al., 1993). Others are exploring the potential of contracting for outcomes.
One proposition is that outcome based contracts are effective in curbing agent opportunism. The argument is that such contracts coalign the preferences of agents with those of the principal because the rewards for both depend on the same actions and, therefore, the conflicts of self interest between principal and agent are reduced (Eisenhardt, 1989a: 60).
Both avenues of exploration may prove useful for public administration researchers.
Agency and stewardship theories are contrasted in many discussions. There may however be potential for convergence. Arthur and Busentiz (2003) question whether stewards turn off their self-interest or if their self-interest is well aligned to organisation goals. Angwin et al’s (2004) research found that some CEOs who chose pro-organisational approaches did so because they thought it best for the company, while others did so from a desire to maximise their personal wealth. The end actions were the same, even though some were operating as stewards and some as agents. Arthurs and Busentiz (2003) also found that some of the relationships they studied began as principal and agent but over time evolved to principal and steward.
Discretion and trust, it seems, can be earned over time.
Davis et al (1997) argue that situational factors, such as the pre-disposition of the individual to a view about other individuals, the management philosophy of the organisation and even the cultural context of the relationship determine whether agency or stewardship theories are likely to be adopted. Applying the appropriate theory to the appropriate situation is more important than debating which is best overall.
We do not assume that agency theory is wrong or inferior to stewardship theory, as previous researchers have stated. We attempt to reconcile differences between stewardship and agency theory by describing the conditions under which each is necessary’ (Davis et al., 1997: 22).