Tag Archives: Subprime Crisis

Bank Shareholders Fight Back

The past few weeks have witnessed several instances where shareholders have rejected executive compensation packages proposed by bank boards. Is this the dawn of a new era in corporate governance?

Many years ago when I was Business Manager to the Global Head of Treasury at ABN AMRO, the unit submitted its bonus request for that year to the director responsible for the investment banking unit. When he saw the size of the request his acerbic response was; “so what about the shareholders”.

It would appear that shareholders around the world are now beginning to ask the same question. From one bank to the next shareholders are venting their displeasure at the size of executive compensation plans—forcing management to revise their payouts.

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PRMIA Webinar: Clearing the Bull on the Financial Crisis: Before Placing Reliance on Mathematical Models Banks Should Look at History

Presented by Jonathan Ledwidge, Author

April 18 at 12 p.m. U.S. Eastern Time

The subprime financial crisis is but one of a series of banking-related financial crises that have arisen in the past 40 years. These have included the LDC debt crisis of the 1970s and 1980s, the junk bond crisis of the 1980s, the Japanese asset bubble of the late 1980s and early 1990s, and the dotcom crisis of the late 1990s to 2000.

The webinar will demonstrate how a thorough analysis of each of these crises at the micro level would have enabled banks to avoid the worst of the subprime crisis long before their mathematical risk models exploded. Yet, the micro indicators were not the only warning sign.

Thus during the webinar we will explore how banks could and should have reduced their exposure to the subprime crisis if they had also examined the macroeconomic and geopolitical indicators surrounding each of the previous crises. Finally, we will look at what both these macro and micro indicators tell us about the current risk climate.

Use this link to register for the webinar.

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: Continue reading

Clearing The Bull on the Financial Crisis – Part II

This is the second in a three-part series of articles on the financial crisis. Part I can be found at this link.

The Real Reason for the Subprime Crisis and Bank Failures

The subprime crisis was not really about management, risks, controls and regulations—these were all after the fact. The crisis was a direct result of human failings which stemmed from a poor system of values. In order to understand this we have to look at and examine the crisis within the context of the industry’s human ecosystem. The following analysis does precisely that.

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Where was HR in the Financial Crisis?

The folowing article was posted on the People Management blog on March 13, 2012.

Conventional wisdom has it that the subprime crisis was all about the failure of regulations, governance and controls. Presumably, in order to safeguard against the next crisis, the prescription has to be more regulation, more governance and more controls.

The problem is this is exactly what was prescribed after every previous financial storm, such as the LDC (less-developed-country) debt and junk bonds crisis, and the dotcom bubble. This inability to recognise the true causes and remedies of financial crises means they have become like a recurring decimal, seemingly without end.

If we look beyond the confines of convention we will see that the subprime crisis was about human failure arising from poor values. We can specifically relate this to HR by looking at the CEOs involved. They have been accused of megalomania, of having aggressive, oversized egos, and of creating unwieldy, poorly integrated, high risk-taking organisations. The question, therefore, is this: if leadership was a main source of failure, where then was HR?

Every year, HR departments spend millions evaluating employees, performing staff surveys and ensuring that organisations recruit and retain people with the right values. Why were such standards not applied at the very highest, and thus incredibly important, level? Is there any truth to the dictum that HR does not speak truth to power?

For a long time HR has complained, and rightly so, that it did not have appropriate access to executive management. That has now changed in most organisations. Now that HR has that access, it needs to determine how to make best use of it and very clearly articulate its concerns about executive management directly to executive management.

However, that on its own would not be enough. In banking in particular, HR must place itself in a position to assess the impact of executive behaviour on the economic and competitive sustainability of the organisation – as well as what precisely needs to be done when such behaviour is found sadly wanting.

Leadership was not the sole human factor in the subprime crisis – but it’s a great place for HR to start.

Jonathan Ledwidge is conducting a survey on current attitudes to banks, including questions about their values, and invites readers to participate via bit.ly/PMledwidge