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Week 9 Discussion
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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
Here is our case study this week. https://www.nbcnews.com/business/business-news/another-wells-fargo-ceo-steps-down-about-damn-time-longtime-n988671
This week we look at the principle-agent problem and what when wrong at Wells Fargo. After another CEO Tim Sloan the CEO who was suppose to restore the bank's reputation stepped down March 28, 2019 there are still huge questions. https://www.americanbanker.com/news/fed-wont-lift-wells-fargo-cap-until-deficiencies-are-fixed-powell
What about the incentive system 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?" page 8
departments increase their applicant pool by dropping this requirement?
PLEASE DO NOT RELY ON WIKIPEDIA, INVESTOPEDIA OR ANY OTHER PEDIA AS A REFERENCE AT ANYTIME IN THIS COURSE.
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Explanation & Answer
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Outline
I.
The principal agent problem is basically a conflict between a principal and an agent
resulting from information asymmetry between the principal and the agent or rather
failure by the principal to provide enough incentives for the agent; that would allow
him/her act in the best interest of the principal.
II.
The major reason why Wells Fargo & Co. has been through these massive challenges is
due to their incentive system that did not favor employees.
III.
This ruined their intent in all their actions on behalf of t...