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Opinion Expensify’s Political Email to 10 Million Customers Is a Classic Example of the Principal-Agent Problem

13:15  28 october  2020
13:15  28 october  2020 Source:   nationalreview.com

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The principal - agent problem is a conflict in priorities between a person or group and the representative An agent may act in a way that is contrary to the best interests of the principal . What are Principal - Agent Problems ? For example , a company' s stock investors, as part-owners

The expense report processor Expensify is doing its best to scare its 10 million customers into voting for Democrat presidential candidate Joe Biden David Barrett, CEO of the San Francisco-based company, said in an email blasted out to all of Expensify ' s customers on Thursday that the US is

In the lens of recent discussion on the 50th anniversary of Milton Friedman’s New York Times essay on shareholder primacy, which I’ve recently written on, I’ve been thinking about a strange decision made by expense-management-software company Expensify to email all 10 million of its customers (who are likely divided roughly evenly on politics) urging them to support Vice President Joe Biden and further criticizing any customer who would think otherwise, saying that “anything less than a vote for Biden is a vote against democracy.”

  Expensify’s Political Email to 10 Million Customers Is a Classic Example of the Principal-Agent Problem © anyaberkut/Getty Images

What makes it particularly strange is not that it’s related to Biden but how rare it is to see a sizable company with significant institutional shareholders and lenders make such a brazenly political move that could potentially jeopardize half of its customer base.

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Expensify CEO David Barrett claims that there may be a “civil war” if President Donald Trump loses in the upcoming presidential election. The bizarre claim is part of a mass unsolicited email to millions of Expensify customers begging them to vote for Joe Biden. According to Barrett, voting for Trump is a

A widespread real-life example of the principal agent problem is the way companies are owned and operated. The owners (principal) of a firm will The principal - agent problem is also an example of market failure. Market Failures occur when there is a misallocation of resources, which results in

To be sure, this isn’t just another boilerplate statement in support of woke capitalism. Those public-relations moves in many ways seek to benefit shareholders by attempting to retain and help win new socially aware customers (consistent with Friedman’s shareholder primacy).

It also would be different if Expensify were solely owned by its founder and CEO David Barrett, in which case a political endorsement would arguably improve the sole shareholder’s utility (even if revenue were lost), still conforming to the Friedman model of shareholder primacy.

But Expensify has received millions from venture-capital firms. The question is whether Expensify shareholders such as Travis Kalanick, Redpoint Ventures, PJC, OpenView, Hillsven Capital (listed on TechCrunch), who have invested a sum total of $38.2 million in the company, all approve of this decision?

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Problems associated with principal - agent problem and how to overcome. The principal - agent problem can lead to market failure because the agent pursues his own self-interest rather than that of the principal Examples of Principal - Agent Problem . Shareholders and managers of a company.

The principal - agent problem describes challenges that occur when agents and principals have For example , automotive regulations, such as fuel economy standards, are heavily influenced by the Agency cost of debt is a problem arising from the conflict of interest created by the separation of

That doesn’t appear to be the case. According to the Wall Street Journal, the decision was made by employees after Barrett proposed the idea on the company Slack, where the email was later drafted. Apparently, a team of about 20 senior employees then voted on whether to send the email, and more than two-thirds agreed to do so.

The CEO defended the decision in the context of shareholder primacy, arguing that “Expensify depends on a functioning society and economy; not many expense reports get filed during a civil war.” Do Expensify’s outside investors agree with this “civil war” forecast in the event of a certain election outcome?

He further told FastCompany that he’s serious about his hyperbolic prediction that another Trump win would actually threaten the expense-management industry, “As CEO . . . I’m obligated on behalf of shareholders to take any action I can to avoid it. I am confident our democracy (and Expensify) can survive a Biden presidency. I can’t say the same about Trump. It’s truly as simple as that.”

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International organisations suffer from principal - agent problems more than other public or private organisations do because the chain of delegation is more extended. Unanimous decisions in a redistributive context: The council of ministers of the European Communities.

The principal agent problem revolves around how best to get your employees to act in your interests rather than their own? The problem is the many shareholders have no day-to-day control over managers. Pension fund managers cannot dictate what CEOs and CFOs of businesses decide to do

Barrett did concede to the Wall Street Journal that he had some concern about downside risk from a political endorsement (“Of course we’re worried about [losing customers]”), but somehow thinks that sharing his politics could bring in more customers: “Customers want to work with brands that share their values, and I think that the value of promoting democracy is a pretty universal one.”

Why make such a gamble? In my opinion, the Expensify email is a consequence of what economists call a “principal-agent problem,” which arises when those managing a corporation act in interests contrary to those who own the business.

Barrett in such a move gains some fame (he has already gained a substantial amount of positive press from the email), but at enormous risk to shareholders if the move comes at the cost of customers.

Why are no other companies with outside investors making similar political endorsements? Simply put, overt politics are bad for business. As Friedman famously put it in the 1980 Free To Choose series, free enterprise has the power of promoting cooperation among people who ordinarily “might hate one another” ultimately fostering “harmony and peace.”

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PDF | The principal – agent model holds great promise for understanding the institutional of the principal – agent model, this article offers a critical examination of the way that . After delegation: coping with the ‘ principal ’ s problem ’. Political scientists investigating delegation have focused on

Principal Agent Problem . Newly added. Showing 20 of 10 K+ results. Median Voter Theorem. voters vote for the policy that is closest to their ideal point on a line then the ideal then the odeal point of the median will beat any other policy in a majority rule election.

One unhappy Expensify user told the Wall Street Journal that this was “gross negligence in sending out a politically charged email.” I wonder how outside investors feel about that.

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usr: 19
This is interesting!