Principals and Agents, or Principals and Stewards? Australian Arms Length Agencies’ Perceptions of Arm’s Length Government Instruments

After the large-scale creation of arm’s length agencies by governments around the globe, these governments now face the dilemma of how to manage, steer or control these arm’s length agencies. Different instruments have been developed, based on either of two theoretical models: principal-agent theory or stewardship theory. Both are based on economic models of man with a principal charging an agent or a steward with a task. Principal-agent theory is based on the principal distrusting the agent to perform as agreed, leading to a need for extra monitoring and control. Stewardship theory is based on trust, and requires very different instruments to manage at arm’s length. Using the perspective of arm’s length bodies at federal level in Australia, we will describe how they perceive the instruments that have been implemented by their portfolio departments to manage and control them. Using survey data (N = 89), we will test which of the two models is used most often in this country, one of the frontrunners in agencification. Results show that arm’s length agencies are more inclined to take a stewardship position, while a mixture of instruments from the principal-agent and stewardship model is applied. This could lead to problematic relationships.