From the Wall Street Journal's Real Time Economics blog:
Lax Regulation Not to Blame for J.P. Morgan Loss
By now you must have heard about J.P. Morgan Chase’s $2 billion trading loss. You’ll also have heard the screams of outrage and the calls for more banking regulation. Maybe the regulation is part of the problem. But it’s not all of it: Not by a long way.
What you may not know is that at least part of the problem comes from what economists call “agency cost.” That’s the cost of having someone run the business who doesn’t own it.
The owners — J.P. Morgan shareholders — have goals that are vastly different from those of the employees — in this case the traders. Employees want big bonuses. Shareholders want steadily growing profits.
The fact is, the people at J.P. Morgan who made the bad bets, and lost all that money, were gambling with someone else’s cash. They also were doing so in a way that wasn’t in the best interests of shareholders....MOREFrom a May 11 email to a friend:
Lehman also paid their people well...Double Ha!
Someone has to be the adult in the room, that usually falls to some non-owner officer.
In your example or a Cargill, where the bets are made with the family wealth, you have as much power devolving down the "thou shalt not" chain of command as down the "thou shalt" line.
All trading firms should probably be private and maybe even partnerships.
For the record my interlocutor agreed and went on to explore how corporate protections could be applied to a partnership structure.
This isn't the first time the question has come up. In 2009's "David Viniar, CFO of Goldman Sachs Blows Smoke at Journalists on AIG" the free-association went like this:
...My question is, "If Goldman Sachs were still a partnership, would they have entered into these transactions in the same size?"
The answer, of course, is no.
If partners equity were at risk, there is no way that they would have depended on ratings agencies to ascertain the strength of their counterparty.
Junior partners would be expected to run honey traps on AIG employees.
Lower level employees would hone their dumpster-diving skills.
Whatever it takes to gain competitive intelligence and safeguard the partnership's capital.
See also: "The optimal design of Ponzi schemes in finite economies"...