Question

I need some real-life examples/cases related to agency conflicts and the conflicts between the firm's stakeholders and the objective of the firm in maximizing its shareholders' wealth  for my understanding.
I look for cases that have been placed in the press.
Thank you!

Answer 1

Agency Problem: Some of the most prominent real life cases of agency problem include Enron case. In the more recent times, Wells Fargo bank case described the agency problem very succinctly. The case involved creation of a thousands of fake accounts by its employees to boost their bonuses and compensations. However, it ended with competitors paying up to $100 million in fines. In such cases, agents or employees did not work in principal’s interest but for their own interest.

Similarly, Lehman Brothers also faced the similar problem during 2008 financial crash. In this case, the agents were directors who did not act in the company’s interest. Their negligence to properly check the company’s operations resulted in its ultimate failure.

Other cases involving activist investors such as Bill Ackman are also prime examples of principal agency problem.