The Agency Problem

Now that David Radler’s testimony is over, the prosecution has to affirm that he’s been both “truthful” and “helpful” to the “sentencing judge.” (It’s an open secret that this judge is Amy St. Eve.) Like many a two-pack of standards, at times it can seem like serving two masters. You can see this by imaging you’re a plea bargainer who has to live up to those two standards.

Ideally, the two complement each other: if you’re truthful, then you’re helpful. It is possible to be truthful without being helpful, though: if you tell the truth and yet act like a jerk on the stand, then you’ve prejudiced the case you’re supposed to be supporting. The same thing goes for being the bad boy (or girl) with respect to the judge. You can be as truthful as you please, but if you aren’t well-behaved enough to avoid alienating anyone that decides the prosecution’s case, then you’re not being helpful – you’re being the reverse.

The same clash can erupt with respect to “helpful.” Ideally, to be helpful to the prosecution as a witness means to be truthful, as you can’t really help the prosecutors by failing to uphold the oath you have to swear. You are, after all, supposed to tell “the truth, the whole truth and nothing but the truth.”

Unfortunately, words being what they are, there’s a bit of bend with respect to the last two. It’s tempting to bulk up the category of the “whole truth” if you want to be helpful, just as it is to become uncertain about facts that no longer seem to be “nothing but the truth” when you really want to be helpful. This shading doesn’t even have to be calculated; often, it’s an unconscious decision. If you’re under pressure, your memory does sometimes veer from the accuracy you may have had when unpressured. So, being eager to be helpful can cut in to a rigourous attempt to be truthful.

Sophisticated prosecutors know this, and it wouldn’t surprise me to learn that they use pressure-draining techniques when prepping witnesses who have plea-bargained. Nevertheless, there is an obvious incentive to be helpful; common sense tells us that the typical self-interested witness would err on the side of helpful because he (or she) wants the deal.

This kind of dilemma is known as an “agency problem” in management theory. An agency problem pops up when an agent has a little leeway to serve him- or herself at the expense of the person he (or she) is representing, called the “principal.” This concept is as disillusioning as a lot of management theory is. It does intrude, though, even in situations where blood runs thick. The most clear-cut, and saddening, agency problem crops up when the parents of a child star figure out that they can take some of the money from the kid’s earnings without their kid being able to do anything about it.

Since this problem is a dilemma, there’s no final answer to it. The old-fashioned way was simple: if you don’t trust someone, then don’t take them in. These days, though, it’s a more legalfied world, so that option isn’t available to many of the biggies, including child stars. For big institutions, too many potential lawsuits can arise.

The corporate-governance movement is in place largely to find a workable substitute for the old personal-trust standard. That’s what they’re aiming at. Like most dilemmas, though, many of the proffered solutions only push it back a step or two.