Contemporary Research on Organization Management and Administration
Vol. 2021, 9 (2)
ISSN (online) 2335-7959
Pages: 56-72

Yuliia Pokhodun, Mykolas Romeris University, Lithuania

Status: Published
Full paper link: CROMA_2021_9_2_56-72.pdf

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This article is licensed under a Creative Commons Attribution 4.0 international Licence


Purpose of the current research is how to ensure the balance of rights and lawful interests for the participants in legal relations of representation (agent, principal, third parties) in international commercial agency from the perspective of civil law and common law. Even though, the perception of legal institutions via just these legal systems has been widely critiqued as being too simplistic on both theoretical and empirical grounds (Coffee, 2001; Armour, at al., 2009), a closer look at these systems shows that approaches vary greatly regarding what mechanisms of controlling and minimizing the conflicts of interests are the most effective (Filatotchev, Jackson, & Nakajima, 2013, p. 975).

Design/methodology/approach in the research paper will be mainly aimed at revealing all the significant features of aligning the interests of commercial agency actors in common law and civil legal systems. The scientific work is based on the view and principles of qualitative methodology as it permits a study of a discrete phenomenon in order to discover its new perspectives without the need to come to a preliminary view on the nature of the problem set.

Findings. The analysis of scientific works has shown that agency theory is regarded as very pragmatic and widely applied. It has roots in different academic fields and its usefulness is very extensive and prominent. Nevertheless, the theory is vastly “under-theorized” as there has been no unified explanation or theory adopted on how legal and social environments shape the identities, interactions and interests among participants to agency relations in different countries. International commercial agency usually implies the relationship of at least two of the participants (agent and principal) are located in different countries where an agent who is properly authorized performs legal acts on the principal’s behalf (Bonell, 2018, p. 24). However, agency relationships are extremely complex and usually involve many participants, whose interests might be misaligned, thus, diminishing the quality of agency and increasing agency costs. The misalignment of interests between the participants to international commercial agency arises when the agency requires personal costs from the agent during the performance of actions directed at maximizing the principal’s welfare. In other words, when the agency becomes not equally beneficial or even unprofitable for one of its participants, the agency problem arises. The most frequent reason of misalignment is the information asymmetry that influences agents’ decisions and creates a systemic gap in the incentives of both the principal and the agent. All mechanisms focused on minimizing agency conflicts are mainly aimed to minimize agency costs, leaving behind the importance to align the interests of the participants to such relationships, in the first place. The difference of interests may also cause the problem of unauthorized agency that severely diminishes the quality of agency relationships when the agent ignores the limits of the issued authority in order to get the agreed commission fee (Busch & Macgregor, 2009).

Research limitations/implications. The conflict of interest and agency costs arise due to the different risk preferences, information asymmetry and moral hazards. Scientists have developed many mechanisms in order to constraint opportunism of the agents acting on behalf of their principals (such as strong ownership control, compensation, etc.). To balance the incentives of all participants to commercial agency, a good system of legal regulation should be developed in order to show the level of alignment of the parties’ interests The main emphasis within the current research is put on describing the mechanisms designed to minimize agency conflicts and align the interests of the participants to agency relationships in case their interests within are not properly aligned.

Practical implications Legal framework is extremely important in minimizing agency conflicts, since it sets the rules, under which the businesses and agents are expected to perform, however, this is not universally applicable. Courts are usually reluctant to interfere into the commercial decision with the constraint mechanisms either because they lack sufficient experience or such interference will slow up the pace of commerce (Lesini v Westrip Holdings Ltd, 2009, p. 85). When it comes to the international and European legal framework, currently no standard legislation exists, neither nationally, nor internationally. European Community (EC) Directive on Electronic Commerce is based on the UNICITRAL Model Law on Software Commerce, however, unlike UNCITRAL is binding upon each Member State to which it is addressed, but it is left to the national authorities to choose the form and methods (Directive 2000/31/EC, 2000). This problem becomes even more crucial when the transactions are performed internationally, and the problem arises what national law has to be used, especially when there was no explicit agreement made on the applicable law in the general terms and conditions of the contract.

Originality/Value of the research is justified by the fact that no deep comprehensive international research has been provided in respect of the determination of agency conflicts in commercial law, ways of their minimization and control from the perspectives of civil law and common law. Common law terminology is currently prevailing in the international trade due to the simplicity of its application, in comparison to the continental vision. However, the agency theory in common law has developed in its distinctive manner and its exploration may be useful for comprehensive understanding of the problem and finding the most suitable unified solution.

Keywords: private international law; agent; commercial agency; agency problem; alignment of interests.

Research type: research paper.

JEL classification: K12, K15 K20.

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