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Marshall School of Business
University of Southern California
Rev. 4-28-11
Haengbok Bancorp
Teaching Note
Purpose of Case
The Haengbok Bancorp case raises the issue as to whether the activities of bank lending officers
should be monitored and motivated using a results control system built around a profit measure
of performance. This issue is timely, given that many of the major problems faced in the
financial services industry in 20082009 were blamed on incentive problems. This case
Suggested Assignment Questions
1. Evaluate Haengbok Bancorps system of controlling the behaviors of the account managers
in the New York branch. What changes would you suggest be made, if any? Explain. In
2. Discuss the FETC loan application situation and the effects that outcome might have on the
account managers behaviors and performances? Does this example illustrate a problem that
needs to be fixed? If not, why not? If so, how would you fix it? Explain.
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
287
Case Analysis
Here are some major questions that can be raised in class:
1. What makes a good account manager?
This is somewhat spelled out in the case. Account managers must find their best prospective
clients, solicit their business, structure the deals (term, pricing, covenants), prepare the loan
2. What are the alternatives for controlling the activities of the account managers?
All of the major types of controls discussed in the book could be, and are to some extent,
3. Did Jae Lee do a good job with the FETC loan application?
Students will argue both sides of this question. In defense of Jae, he found a client that
appears to fit the branchs mission. He apparently worked effectively with the client and got
the application submitted. All indications are that the application was well prepared. The
4. Is the banks control system effective?
On the positive side:
It appears to protect the bank from making bad loans because there are multiple levels
of reviews. The controls are tighter with larger loan applications.
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
288
On the negative:
It is pretty loose.
There is not much direction given to the account managers. They are told to book
good deals, but apparently what makes a good deal good is not well
communicated.
5. Is the idea of setting up the account managers as mini profit centers a good one?
This is the core issue in the case. Is profit a good performance measure in the banking
industry? Almost assuredly the answer to this question is no. There are measurement
problems:
Profit is not assured until the principal is paid back. The riskier the loan, the higher the
profits look in the early periods, but the higher the potential that some portion of the
principal will have to be written off.
6. What are the alternatives?
A. Personnel controls
Hire experienced account managers
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
289
B. Action controls
Direct supervision. Easy to do when the branch is small.
7. What will the control system look like in 10 years, say, assuming the branch is
significantly larger?
When the branch become larger, it will be more difficult for Mr. Kim, or the branch
manager at that time, to know all that is going on in the branch and, hence, to provide direct
Pedagogy
This is not a difficult case. Most students understand at least intuitively what the account
manager job is. It is relatively easy to get them to express their opinions in class.
There are different ways to organize a class discussion of this case. One alternative is to follow
the order of the questions discussed above. That is, clarify the major elements of the accounting
