Saturday, March 19, 2016

The Parable of the Unfaithful Servant/Manager and Agency Theory

The Parable of the Unfaithful Servant/Manager and Agency Theory
by Bryan J. Neva, Sr.

One of the biggest challenges one faces in business is called Agency Theory.  Agency Theory explains the problems in a relationship a property or business owner (the Principal) has with a service provider or business manager (the Agent).

For example, if you hired a contractor to make improvements on your home, your goals and the contractor's goals are naturally in conflict. You want quality work done in a timely manner at a fair and reasonable price, whereas the contractor wants to perform the minimal amount of work in an untimely manner at the highest possible price. They may perform shoddy work and take their time in order to make a higher profit. And since you're not knowledgeable about construction, it's difficult, time consuming, and expensive for you to verify the quality of the contractor's work.

Or if you hired an investment advisor to manage your retirement investments, your tolerances for risk are naturally different. You want the maximum returns at the lowest possible risk, while he wants the maximum returns at the highest risk or the minimal returns at the lowest risk. He may put your money into high risk junk bonds or high risk stocks in an emerging market in order to make a higher profit for himself. And since you're not knowledgeable about investing, it's difficult, time consuming, and expensive for you to verify the quality of the advisor's investment choices.

Or if you owned a business and needed to hire someone to run it in your absence, your managerial decisions are naturally different. You want to earn the maximum profits in an honest and ethical manner, while he wants to earn the maximum profits for himself by taking shortcuts. You don't know if your manager is being honest and ethical and treating the rest of your employees fairly. They may run your business like their own private fiefdom. And since you're not there to supervise, it's very difficult, time consuming, and expensive for you to know if your manager is doing a good job or not.

Agency Theory was a problem in Jesus' day as well, and He told this Parable of the Unfaithful Servant/Manager (Luke 12:41-48) to teach us all an important lesson (my dramatization).

A master had to go away on a long trip, so the master promoted his trusted servant to be the manager of his household in charge of his affairs and all the other servants while he was gone. The position had a lot of responsibility, and it was the servant's job to be twice as vigilant both as a manager and as a simple servant of his master.  

So what must the servant be like once he has been promoted to manager? First he has to be trustworthy in managing his master's household and treat the other servants kindly and fairly. Second, he must be shrewd and loyal, in order to fulfill his own duties and ensure his subordinates fulfill theirs. Otherwise the interests of the master would suffer a loss.

And the master has to compensate his servant/manager in such a way that he'll act in his master's best interests while he is away. Hopefully if the master chose the right servant to manage his affairs and compensates him fairly, then the servant/manager will act loyally, diligently and honestly in the master's absence. And if he proves to be trustworthy and reliable, the master may even promote him to much greater responsibilities with higher pay.

However, if the servant/manager says: “Well! my master is very far away and has written to me that he will be delayed in coming back home. So I can do what I like and I will do the necessary when I think he is about to come.”  And he begins to eat and drink until he gets drunk and gives crazy orders and, as the good servants under him refuse to carry them out not to cause damage to their master, he beats the servants and maids until they are taken ill and decline.  And thinking that he is happy he says: “At last I relish being the master and feared by everybody.”  

So what will happen to him? Eventually, the master will return home when he least expects it and catch him in the very act of pocketing money, treating the good servants badly, and showing favoritism to the unreliable servants. Then the master will fire him and throw him out of his house, depriving him of his position as manager, and refuse to keep him among his servants (because it is not right to keep unfaithful servants among honest people).  

And the more the master previously loved and instructed him, the more he will be punished.  Because the more one is aware of the will and mind of the master, the more one is obliged to fulfill it accurately.  If one does not act as the master explained in so great detail that nobody else was told so clearly, one will be severely beaten, whereas an inferior servant, who knows little and does wrong while he thinks he is doing right, will receive a less severe punishment. Much will be requested of him who was given much, and he who has much in his care, will have to return much.

What is Jesus trying to teach us in this parable? As practicing Christians, we too are his servants who were promoted to manage His affairs. He has given us all gifts and responsibilities to manage in his absence. We may have a job, so we should be good and honest employees just as if Jesus were our boss. We may be in a position of authority over others, so we should treat our subordinates kindly and fairly just as Jesus would. We may have a family, so we should love our families just as Jesus would love them. We may own property, so we should take care of it and pay the mortgage just as if Jesus were our landlord or mortgage lender. We may have retirement savings, so we should manage our investments just as if it were Jesus' investments. We may have talents, so we should use those talents just as Jesus would use those talents. The list could go on and on.

And when you really think hard about it, everything we have has been given to us. Our ability to earn a living has been given to us. The wealth we've accumulated has been given to us. Our position in life has been given to us. Our friends and families have been given to us. It's completely by the grace of God we have what we have, so we should be faithful servants/managers of our Master.  

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