This study explores a method to design and operate an employee evaluation system that is intended to curb moral hazards in agricultural corporations, through deductive inference, based on the agency theory. It also tests the effectiveness of the system through a case study.

According to the agency theory, moral hazard arises because the principal cannot accurately assess an employee’s effort, as the latter’s choices of action constitute asymmetric information for the former. In this study, we showed that evaluating employees’ choices of actions as symmetric information, even if only partially, was more likely to curb employee moral hazard. We did this by using a game tree, with one employee and one principal as the basis of the mechanism that causes moral hazard between them, when the principal possesses only asymmetric information about the employee’s choices of action.

Using a case study of agricultural corporation A, which introduced a system that evaluates a part of employees’ choices of actions as symmetric information, we explored the operation and effectiveness of the evaluation system. We established that an evaluation system can be realized using indicators that contribute to improving employees’ performance for the principal, based on symmetric information to determine their actions. The addition of such a bonus would result in greater financial savings than an evaluation method based only on asymmetric information.

Studies on the 2020 Agricultural Census reveal a rapid increase in the number and size of agricultural corporations. More agricultural corporations will thus socially and environmentally affect our regional societies. From the perspective of the Sustainable Development Goals, the agri-industry needs to adopt the framework of creating shared value, that is, firms must attain sustainable competitive advantage by creating economic and social values. Agricultural corporations need to develop dynamic capabilities that enable them to flexibly exploit their management resources and adapt to rapidly changing environments. This study aims to clarify the importance of agricultural corporations’ environment, society, and corporate governance (ESG) activities to their development. The results of a questionnaire survey of 927 members of Japan Agricultural Corporation Society reveal the following : First, trends in ESG activities vary by farming type ; second, these activities directly affect farm development ; and third, there is high correlation between the index score of ESG activities and the index of dynamic capability. Thus, in the context of sustainability goals and trends, and in addition to the economic issues addressed thus far, research on the effects of ESG activities on management and their related factors is becoming increasingly important for agricultural corporations.