Agency Theory and Financial Crime

The purpose of this paper is to philosophically address the issue of managerial opportunism and to describe the paradox of the opportunistic executive, particularly when the CEO could be considered as a “criminal-to-be”. Also, It will be seen to what extent governance mechanisms really contribute to prevent managerial opportunism, particularly through compensation packages (“financial carrots”). Then, Oliver Williamson’s viewpoint will be analyzed on opportunism, as his theory has largely influenced the way agency theories actually define managerial opportunism. The gap in exploring three basic types of opportunism (the Smithian egoist, the Hobbesian egoist and the Machiavellian egoist) will be filled. The results indicate that The Smithian egoist tries to reach equilibrium between self-interest and compassion, while the Hobbesian egoist is motivated by self-interest, desire of power and the attitude of prudence. The Machiavellian egoist is always searching for power and makes followers’ fear arising. The way governance mechanisms and structures should be designed and implemented could be quite different if the CEO actually behaves as a Smithian, Hobbesian or Machiavellian egoist. CEO’s propensity to commit financial crime could largely vary from one type to another: low risk (Smithian egoist), medium risk (Hobbesian egoist) or high risk (Machiavellian egoist). Smith’s, Hobbes’ and Machiavelli’s philosophy was chosen because the agency theory sometimes refers to it, when defining the notion of opportunism. Other philosophies could also be analyzed to see to what extent they are opening the door to opportunism (for example, Spinoza).