Running head: WELLS FARGO 1

Wells Fargo

Student

Institution Affiliation

Date
WELLS FARGO 2

Wells Fargo

According to the principal-agent relationship, a set of goals are usually set by the

principal and the agent is supposed to ensure that he or she achieves the goals (Wang & Liu,

2015). Regardless of the goals set by the principal, agents are supposed to ensure they deliver

and deliver well. The principal, in an attempt to achieve the goals, motivates the agent. Lack of

motivation among agents may results in failure to achieve the set goals or poor performance.

Wells Fargo’s case can be viewed in the lens of a principal-agent relationship. The

officials at the company came up with a compensation system that motivated employees to meet

targets that were unreachable. In an attempt to meet their targets, employees engaged in creation

of fraudulent customer bank accounts without the consent of the customers (Egan, 2016). The

system that was in place allowed employees to “game” the system in order to meet their targets

and be rewarded handsomely. Managers, just like employees, were also rewarded for good

performance. When employees performed well, their performance was indicative of managers’

prowess in leading them.

There was no proper auditing system in place as the incentive system used by Wells

Fargo was based on a ‘no questions asked’ culture. Employees were permitted to engage in

fraudulent activities by their managers based on the incentives each would receive (Rodriguez,

2019). Based on the principal-agent relationship, the CEO and the overall management team can

be viewed as the principals while the employees are the agents.

WELLS FARGO 3

References

Egan, M. (2016). 5,300 Wells Fargo employees fired over 2 million phony

accounts. Retrieved May 30, 2019, from

https://money.cnn.com/2016/09/08/investing/wells-fargo-created-phony-accounts-

bank-fees/index.html

Rodriguez, B. (2019, January 01). Wells Fargo agrees to $575 million settlement affecting all 50

states in wake of fake accounts. Retrieved May 30, 2019, from

https://www.usatoday.com/story/money/business/2018/12/28/wells-fargo-fake-accounts-

settlement/2432088002/

Wang, Y., & Liu, J. (2015). Evaluation of the excess revenue sharing ratio in PPP projects using

principal–agent models. International journal of project management, 33(6), 1317-1324.