Clearing The Bull on the Financial Crisis – Part III

This is the third in a three-part series of articles on the financial crisis. The links for Part I and Part II can be found here and here respectively.

A New Strategic Business Model – The Human Asset Bank

Our analysis in Part II demonstrates that the financial crisis was from beginning to end about human failings and the values, or lack thereof, which gave rise to those failings. As such, an appropriate remedy must be based on the human ecosystem that surrounds each bank and the industry as a whole.

I call this human ecosystem of banks and the values necessary for them to achieve economic and competitive sustainability The Human Asset Bank. However, the change we seek can only come about if banks, and the industry as a whole, show wholehearted and genuine commitment to making such a change. This is entirely consistent with our opening proposition in Part I – that more legislation, more regulations, more governance and more controls are not what banks need.

Thus, a commitment to change and to The Human Asset Bank would be as follows:

Mission and Values that have Real Meaning and Purpose – Our organization is a human ecosystem of employees, managers, customers, suppliers and the community. These human assets are motivated by our mission and guided by our values and these have real meaning and purpose. They are the primary sources of inspiration, collaboration and innovation within our human ecosystem, and thus are the basis on which we achieve both economic and competitive sustainability. While we maintain a properly functioning system of governance and controls, it is our mission and values that ensure that we always do the right thing.

Exemplary Leadership and Management – Management’s primary responsibility is to exemplify and reinforce the mission and values. In the long term that is the basis on which management and the organization will be assessed.

In pursuit of their responsibility management will work to develop, integrate, and sustain the organization’s human ecosystem. This includes a commitment to never growing the organization beyond a scope and size which would diminish management’s ability to excel in that duty.

Individual Employees, Individual LeadersWe do not hire robots and we abhor perverse incentives. Our aim is to engage, motivate, and develop every single employee in accordance with the mission and values such that they become a leader in their own right and fully contribute to sustaining the organization.

Flexible and Responsive Network of Employees – Our employees constitute a flexible and responsive network for both enhancing performance and reducing risks. That network is strongly influenced and guided by our mission and values.

Committed to the Long-Term Interests of our Customers – Our success will be measured, in part, by the utility of our products and services to our customers in both the short and long term. As such, we will ensure that our mission and values are embedded within our sales teams and that said teams continuously share and practice them with our customers.

Engaging Suppliers Who Share Our Values – We fully recognize that the quality of our customer products, services, and solutions are entirely dependent on the quality of purchased inputs. As a consequence we will only engage those suppliers who understand and are willing to assist us in our mission and share in our values.

Streamlined and Efficient Systems and Processes – We will consistently work to develop efficient and effective systems and processes in order to safeguard the integrity and stability of the financial system.

We have also made a sincere commitment to work with other banks, financial institutions, and regulators to improve the efficiency and effectiveness of the systems and processes within the industry. Our aim is to reduce the level of risk and complexity in our own operations as well as the level of systemic risks within the financial markets. We will further endeavor to maintain an organization structure that is both simple and transparent in order to facilitate the free flow of information and improved risk management.

Masters of our External Environment – Mastering our external environment and not succumbing to economic and mathematically precise orthodoxies is crucial to the long-term sustainability of our organization.

We will develop independent and objective assessments of our external environment. Without exception, our actions and activities will always be guided by our mission and values and we reject opportunistic and short-term maximization of profits as a mode of operation.

Aligned with the Human Imperatives of the Community – We consider the maintenance of the integrity and stability of the financial system both a privilege and a public duty.

We recognize that there is a symbiotic relationship between the success with which we perform our public duty and the sustainability of our organization. Further, in performing our public duty we will also ensure that our interaction with governments will always be open and transparent.

Making the Human Transformation

The Human Asset Bank cannot be achieved overnight. Organizational transformations can take anywhere between three to five years, depending on the level of management commitment. Maybe if banks were to start right now they would succeed in making this transformation just in time to avoid the next financial crisis.

Why would banks want to commit to such a change?

Well it has become increasingly obvious that while banks may grapple with legislators and regulators over new and ever more onerous rules, and battle clients in the courts over compensation for bad investments, the real courts that banks have to face is the court of public opinion. The recent revelation by Greg Smith, formerly of Goldman Sachs, was just one opportunity for public judgment but who knows what comes next.

I firmly believe that if banks do not commit to genuine change then there will come a time when events will move in such a manner that the decision will be taken entirely out of their hands.

Finally, for those such as British Prime Minister David Cameron who talk about “Responsible Capitalism”, The Human Asset Bank provides a framework within which they can define how such Responsible Capitalism can come about.

Jonathan Ledwidge has more than 20 years experience in investment banking and is the author of the book Clearing The Bull: The Financial Crisis and Why Banks Need a Human Transformation. Web: www.ledwidge.com Email: jonathan@ledwidge.com

Advertisements

3 responses to “Clearing The Bull on the Financial Crisis – Part III

  1. Lapbuin Rodrigue

    Sir,
    Your points are genuine. Nonetheless, managing or leading human values is one of the most complex issues in life. Human beings have very complex value systems that maybe difficult to define.
    The reason for legislation, regulations, corporate governance is to try to align human thinking to at least a minimum that could favor the general public. If we could follow the spirit behind every law, they won’t be any crisis. But humans always try to break the rules and the only way to tame such people is by sanctions.

    • I agree to some extent that behaviours and laws must be aligned. However, it is simply impossible to create laws for every conceivable bad or poor act/decision.

      My point is that in the long term, the organisations themselves have to make the change. Otherwise we are simply waiting for the next crisis which will be accompanied by another set of laws.

  2. Lapbuin Rodrigue

    We can’t create laws for every bad/ poor act. Afterall, some of these laws are created only after the act has been committed (reactive). Notwithstanding, the efficiency of every regulation is better appreciated if people go by the spirit of the law and not the rules. This is due to the lapses/ gabs in human behavior. Regulations would have been out of place if all people had a single logical thinking pattern. Consider how stressful it is to decide on a regulation. The debate is fierce, some regulators disagree and even veto then they come to a consensus. All these are because of our varied backgrounds and behavioral patterns. We therefore need a point of alignment which comes through regulation and it is meant for people to interprete the spirit behind it.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s