Includes the consulting paper assignment of Management Control Systems. The concept of the 'three-legged' stool was applied to the movie Wallstreet (1991). The paper was graded with an 7.5
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Greed is Good – A Agency view on Wallstreet (1987)
Addressing the Agency Problem:
This case-study is based on the synopsis of the American film ‘Wall Street’ (1987). We view the
case of Bud Fox, an ambitious and eager stockbroker. Motived by fast money (through higher
commissions, better clients and promotions) and working together with his idol Gordon Gekko (as
both client and partner), he commits the crime of Insider Trading. His performance is mostly
measured by the commissions he collects from trades. This presents itself in performance pay, as
he receives bonuses based on a percentage of the amount of commissions he collects. However,
he is also personally liable for the losses he makes. The problem is that participating in this crime,
maximizes the bonuses for Mr. Fox and minimizes the personal risks due to low quality
performance measures, his performance measure is mainly based upon Noise, in the form of the
unpredictability of the stock market. To limit the weight of Noise on the performance measure,
Insider Trading can be used to mitigate risks associated with stocks by knowing the outcome in
advance. Ultimately, the behavior he exhibits as an agent towards his principal is undesirable.
Finally, it is worth noting that, based on the plot, his total income is mostly dependent on bonuses.
The major principal is the fictitious firm Jackson Steinem & CO, for which Mr. Fox works. This
agent-principal relation will be examined in this case.
Wall Street (1987) presents a case where two other stakeholders can be considered principals,
being: the shareholders community and capital investors that are represented by Mr. Fox. The
former, expects stockbrokers not to use insider information during their transactions as it creates
an unfair advantage. The latter expects Mr. Fox to act in their interest, managing their securities in
a way that provides reasonable legal returns at a certain predetermined rate. For the sake of clarity,
both principals are excluded from this case.
Note: During this case, we do not take the technical-limitations into account of the 1980s.
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