Hudson Bay Company Case Summary

Mismanagement by company-appointed agents is an issue that challenges organizations with hubs in various worldwide locations. Agency problems are detrimental to firms, and if left unchecked, can spell out disaster for a company. For charted companies of the 17th and 18th centuries, managerial commitment was highly impacted by the lengthy gaps in communication with firm directors; often leading to opportunistic behavior among overseas management. While several companies failed, the Hudson Bay Company successfully established a mix of business practices that strived to dismiss workplace deviance. By raising opportunity costs, increasing accountability and developing a social environment, the Hudson Bay Company was successful in minimizing the
Firms lacked the knowledge to truly know the conditions of the land and therefore lacked the ability to differentiate between low harvest of furs or high engagement of private trade. As stated in “Agency Problems in Early Charted Companies”, “Informational asymmetries allowed the private trade problem to exist…[which] reduced company profits and increased returns to managers” (Carlos & Nicholas 587-588). To limit the desire to engage in opportunism, the Hudson Bay Company introduced employment contracts, incentive programs, and oaths to sustain from private trade. Employment contracts “specified the number of years to be spent on the Bay, the salary, and… stipulations, such as care of a wife or children in the event the man died” (862). Managers received extremely high salaries for the time period; the idea being that increasing the opportunity for making more in salary would reduce– and hopefully eliminate– the desire to exploit their positions for the sake of private trade. The employment contract also required all managers and ship captains to take an oath promising to sustain from private trade. In conjunction to the oath, managers were asked to post bonds promising that they would both “make the voyage… and fulfill their covenant”(864). Lastly, the company introduced a bonus system that offered both managers and ship captains money per-beaver-fur traded legally and any
Through positive encouragement, acknowledgement of a job well done and large bonuses (as mentioned earlier); the goal was to have an ethical system of managers and workers that believed in each other and the company over the draw of independent greed. They “actively tried to create a managerial class with a set of shared values” by welcoming complaints or concerns pertaining to the behavior of any worker and would willingly listen to both sides before acting (874). Hudson Bay Company would recall any employee accused of deviant behavior back to London to launch an investigation on the complaint. While in theory this system would seem proactive, it opened up the forum for opportunistic employees to essentially deport managers for an extended period of time. To negate falsified complaints, Hudson Bay Company began to replace recalled managers with an equally suitable employee from another post to discourage abuse of this system. This also served as a way for the London Committee to audit the practices of any given post. An apprentice system was also established to help create a future of suitable managers for Hudson Bay. These apprentices, who were already educated in writing and math, would learn how to manage a labor force and how to trade for furs. By the end of the 18th century, many of the major company officers were former apprentices. Establishing a company