The Agent Problem

It occurred to me this morning as I scanned the headlines that three of the big stories in the paper this morning all had the same root cause. The flood of child migrants on our Southern border, the flood of inversion deals as companies seek to lower their tax bill and Rupert Murdoch’s quixotic attempt to takeover Time Warner all start with what I call the “Agent Problem”. An agent is an intermediary who makes his profit from a transaction without regard to the larger consequences. Let’s start with the Inversion issue. The Treasury Secretary says the Obama administration may have to act to stop the flood of deals being proposed by Investment Banks (agents).

The action comes in the face of a recent increase in United States companies reaching deals to reorganize overseas, creating an explosive political issue that Mr. Obama has called a lack of “economic patriotism.” Investment banks have been counseling companies to pursue such transactions because of the potential tax benefits.

The wizards at Goldman Sachs don’t care about eroding the tax base of America, they just want another fee. The same mentality went into the idea some genius proposed to Rupert Murdoch to acquire Time Warner. The deal had nothing to do about innovation or creativity–supposedly the root mission of a media company–it was just financial engineering. size for the sake of Rupert’s ego. Of course there would have been millions in fees to investment bankers, but the businesses would have suffered through the turmoil and ultimately would have destroyed value, like most of the other media mergers that preceded it.

By now you are wondering how does migrant children fit into all of this? In this case the agents are “Coyotes” trolling the slums of Guatemala, Honduras and San Salvador. Armed with misleading marketing materials which led poor parents to believe that if their kids could make it over the border they could qualify for U.S. citizenship, they signed up 50,000 kids in four months to come with them over the border. None of this would have happened without the agents.As Interpol points out, people smuggling is a huge business for organized crime networks.

The flow of migrants across borders is controlled increasingly by criminal networks. Due to more restrictive immigration policies in destination countries and improved technology to monitor border crossings, willing illegal migrants rely increasingly on the help of organized people smugglers.

I don’t know how we deal with the agent problem. They are always moving on to the next deal, and never get blamed for the disasters they leave behind. Any thoughts?

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One Response to The Agent Problem

  1. len says:

    Well known in engineering as the consultant. They are brought in to get efficiency, improve a design, write a functional piece of code or component or in your example, make a deal. Effectiveness depends on where they are socially injected (affectiveness) and what they are tasked or intend to change (effectiveness). That they move on to their next deal or assignment is a given. That the owner controls their assignment is a given. Because change agents must affect the environment, design, etc., unless the contract for them ensures means to test the outcomes of their effects, they become a virus of sorts, an external entity with no symbiotic relationship to the systems they invade.

    The nasty side of this is that test or intended outcome may be hidden from the environment or workplace or disguised as other than is intended by the owner that acquires their services. This has been the case for the locusts set loose on American businesses by their hedge fund and banking investors in the Great Yard Sale of American companies. Often disguised as turn-around agents the turn-around is actually a shrink-bundle-auction (First, Next, Afternext as Halsey Wise called it) which does create some efficiencies but mostly readies the company for sale by making it attractive on the books but otherwise functionally anemic.

    One symptom to watch for is the sudden exit first of the money smart, then those who have employee loyalty, then the a-list technical talent. As with other forms of biological infection, these agents work both subtly and overtly to remove resistance to their goals by creating sham committees and other impotent assignments that get loyalty by proximity (the star effect) or by promises of future rewards some of which will be paid but will be temporary.

    Some agents are positive and outcomes match needs for the owners. These agents gain in reputation among that class of ownership even if the rest of the community doesn’t regard them so highly.

    The common thread is the agent as a change control emerges in systems where a chasm between goals and outcomes is hidden or obscured by the relationships among indigenous affective and effective agents. In other words the consultants show up when management believes they can get better results using non-indigenous change agents. In short, either talent or trust is at issue in the organization.

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