Discussion

The Principle-Agent Problem, To Manage Incentive You Have to Understand Motivation.

What Is the Principle-Agent Problem?  Here is some help.   https://www.youtube.com/watch?v=cpu0dw9VY2E

This week we look at the principle-agent problem and  what when wrong at Wells Fargo. On March 28, 2019 Tim Sloan the CEO of  Wells Fargo, who was suppose to restore the bank’s reputation, stepped  down.  After a very poor showing by Sloan in testimony about the bank  before Congress and with long-standing restrictions by the Federal  Reserve still in place, the bank seems unable to overcome the crisis  created by a whole collection deceptive practices which rose to the  level of fraud.  See https://www.americanbanker.com/news/fed-wont-lift-wells-fargo-cap-until-deficiencies-are-fixed-powell.  On  October 21, 2019 Charles Scharf officially assumed the role of CEO. Can  he succeed in restoring the reputation of Wells Fargo as the bank that  always does the right thing?

You  are going to advise Mr Scharf on a key issue. What about the incentive  system employed by Well Fargo resulted in massive creation of fake  accounts by the retail operation and why did it only get worse from  there? As you dig into this remember Froeb’s rule from Chapter 1“Avoid  the temptation to think about the problem from the employee’s point of  view…{and ask} how does the organization give employees enough  information to make good decisions and the incentives to do so?”

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