Revising control and aligning interests : A case study of a headquarters shifting control exertion on a foreign subsidiary

Abstract: In this study, a process in which a headquarters was changing its way and extent of control exertion on a foreign subsidiary was investigated from an agency theoretical perspective. Two particular characteristics of principal-agent relationships were particularly scrutinized; information asymmetry and aligning interests. These issues were investigated in-depth through interviews, direct observations and document analysis, in order to examine whether they were identified by the headquarters as major problems and accordingly triggered the change initiative. The agency theoretical perspective was subsequently related to theories on organizational interest alignment, in order to examine whether the agency theoretical prescriptions on appropriate control mechanisms seemed appropriate with respect to individuals’ motivation to align their interests’ with organizational goals. The findings suggested that hedonic intrinsic motivation, which is achieved through enjoyable, self-decided and competence-enhancing work tasks, played a more important role than extrinsic rewards, which is contrary to agency theory which emphasizes extrinsic incentives.