The Fourteenth Banker Blog

June 1, 2010

Bankers on Methamphetamines

Filed under: Running Commentary — thefourteenthbanker @ 10:44 PM

From this post by Leo Tilman at Harvard Business Review Blogs, I have pulled the final paragraph for discussion.

The most important battlefront, however, is around the leadership and governance of financial institutions. In dealing with market and competitive pressures, financial executives must demonstrate genuine leadership in making decisions that benefit all stakeholders, including the society at large. In addition to proper incentives and governance, this requires a moral “true north” that has been missing at many failed institutions. Equally critically, boards of directors must become more informed and proactive, embracing their fiduciary responsibilities and enacting a new kind of corporate governance — the one grounded in risk management. I’ll be talking more about this as this HBR debate unfolds.

I will be curious to see the debate unfold. Several times on this blog readers have pointed out to me that the corporation exists for the shareholder’s enrichment, that if management makes decisions that are not in the interest of the shareholder, they can and will rightfully be sued. I don’t see the issue as so simple, though in my more aggrieved states I may wish it were so. There are all sorts of reasons that considering the interests of all stakeholders would prove to be in the interest of the shareholder as well.  Perhaps I am wrong, but I have not seen shareholders line up to sue management when they are too compassionate. Generally those lawsuits are based on gross mismanagement that normally include instances of graft or excessive externalizing of costs to such an extent that the backlash detracts from shareholder value.  In fact, you may have heard that BP is being sued by its shareholders over losses related to negligence in the Alaska Pipeline spill of a few years ago, the Texas City blast and this latest catastrophic spill.

Defendants’ disdain for safety and environmental laws, and the resulting loss of lives and property, has plunged BP into a public relations crisis,” the lawsuit claims. This has resulted in BP being “tagged as an unsafe company and gross polluter, all of which are extremely negative developments which are hurting BP’s business.

So corporate responsibility is more likely to be in the interest of shareholders than not.

But back to the HBR quote above which addresses Financial Institutions.  The professor makes a rather bold statement that all the stakeholders including society must be considered and that in addition to proper incentives and governance, there must be a moral “true north” and that it has been missing in many failed institutions.  I take exception to the caveat “failed institutions”, unless meant to broadly include those institutions that failed society, employees, customers, and the legions of unemployed.  For the very concept of moral “true north” is bankrupt is it only applies in hindsight to failed institutions. There must be a degree of honest self appraisal and few institutions can look in the mirror and not see a blemish.

What must the nature of this new leadership be?  Its measure is not strictly in Risk Management.  As we discussed a few days ago, the nature of a bank is to take managed risk.

It is time to introduce some questions for which ancient answers reappear in new science. Is the carrot and the stick an effective management practice? Already the HBR post posits that it is not, but does not indicate what “true north” might mean.  We must begin to discover a “true north, at least one that can be experimented with by new managers and tested in the marketplace.  I am optimistic that a progressive institution with principled management can succeed in winning over the best bankers, the best clients, and even the best shareholders.

One thing that is strikingly obvious both in the financial crisis and the oil gusher crisis is that the most brilliant and educated leaders are partially blind and inadvertently drive blindness down through the organization.  Remember the comments about a fractal. The organization carries the image of its leader, and vice versa.  The system holographically re-images itself.  This is not  a rare happenstance, it is the new normal.

Like meth addicts, New York bankers run fast and hard from one high to the next.  As in meth addiction, the lows are intolerable.  The system runs on emotion. The question is what emotion, how is it used, and what are the ramifications for the individual, the firm, and the society?

Plato said that a good person is happy and a happy person is good.  Scary.  There are not many happy bankers these days. Included in Plato’s notion of happiness is a sense of calm.  Not a sense of mania with more meth under the Christmas tree. Yet that is the happiness that banks have cultivated. An addictive happiness. A controlling happiness. An imprisoning happiness. A miserable, low quality, fearful happiness that makes one insane. Small happiness. Small flourishing.

An Eastern view of constructive and destructive emotions adds nuance to our Western view.  In Eastern philosophy, a destructive emotion has with in an obscuring, afflicting mental factor. It prevents the mind from ascertaining reality as it is. So to be grossly simple about it, the management systems of banks create attachment to incentives, and aversions or fears of banishment, to control behavior in a way that maximizes profit. A side effect of using these emotional manipulations is that the mind is obscured from seeing reality as it is.  So there you have it.  The root causes of the financial crisis, the oil gusher crisis, the leadership crisis throughout our land, is in the nature of mind.

While that is enough for today, Western neurology also supports the same findings.

So next time you hear a Financial CEO or Tony Hayword say something half baked, have compassion.  Their minds are afflicted by their own conditioning.

In an upcoming post we will consider whether FinReg does anything to address these root causes.

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10 Comments »

  1. A few thoughts – I worked for GE for a few years – Jack was running the place and the clear constant message was the opposite of calm – it was Grow, Jump, Stretch goals, more, better, faster – those on the career path understood that it was career suicide to suggest pausing, or thoughtful consideration.

    My group on more than a few occasions jumped in to push a new initiative even though we often knew that the long term result was likely to be bad.

    In most corporations I still see the bias towards doing. I still see the scorn heaped upon those who counsel with “That looks interesting but what if…” Admittedly a fine balancing act is required but given the costs perhaps we can consider some alternative formulations.

    It will be interesting to watch.

    Comment by Robert Jennings — June 2, 2010 @ 6:56 AM | Reply

    • Our (US) history and national mythology predisposes us to “doing”. We have internalized the rugged frontiersman who tamed the wilderness, the industrialists who conquered the land and seas (ever wonder if all the aggressive, even hostile metaphors are a coincidence?). Our Puritan mythology tells us “idle hands are the Devil’s workshop”, etc. Idleness is seen as slothfulness, shiftlessness.
      It will be interesting to see how, since we are now an aging society, we modify some of these “truths” we tell ourselves, or if we do. Higher, faster, harder are words for the young. Personally, I’m ready for slower, smoother, steadier………..

      Comment by Sandi — June 2, 2010 @ 3:56 PM | Reply

  2. I wonder how many bankers are literally on meth or cocaine? They can after all afford those drugs. It would explain a lot.

    Comment by Randolph — June 2, 2010 @ 9:08 AM | Reply

    • I doubt the incidence is much different than with the general white collar population. I really meant that the system is cash addictive. Anxiety is endemic though in a system that is so judgmental about day to day performance. So Valium is likely above trend.

      Comment by thefourteenthbanker — June 2, 2010 @ 10:07 AM | Reply

  3. Having also worked for Jack, I found the environment extremely empowering. While there I learned the power of the “how we can” mindset as opposed to the “why we can’t” mindset. There was no stigma attached to trying something new and failing. There is always useful stuff to be learned from trying new things even when they fail. Jeff Immelt overrode his Sr. Managers on the eco-imagination initiative – my guess is that this will be one of GE’s biggest long term successes. Due to this environment GE attracts and retains some of our best creative minds. As a manager I have never found it easier to do right by my staff than at GE. I feel extremely fortunate to have received my management training at the School of Jack.

    Comment by oldgal — June 2, 2010 @ 9:14 AM | Reply

  4. Regarding the thought: “all the stakeholders including society must be considered and that in addition to proper incentives and governance, there must be a moral “true north” and that it has been missing”…

    I’d say this is the root of the problem; the lack or complete absence of a Value System (active moral compass) that always considers “the other” when charting the course ahead. Note that “the other” might be consumers, the environment, the American dream, workers, the economy, the marketplace, shareholders, and so on.

    I reference an ACTIVE moral compass here for a reason; we need to think of the Value System as ACTIVE – alive and living within the organization. It shouled be reflected in a firm’s every thought, word and deed. The Value System is a reference point – UNCHANGING – one that you always go back to when crafting new strategy and plans. The core values that a firm holds should be clearly stated and understood by all. It is up to those at the top to set the example, and to infuse core values into the business of doing business, at all levels, everywhere.

    The failure to have an ACTIVE moral compass and to consider the impact of your actions/activities on those outside of the organization enables the firm to go rogue – choosing to embrace whatever reality it needs to succeed.

    Those of us in the corporate realm who did craft strategy utilizing our own value system (because the corporate value system was unarticulated or non-existent) and with focus on “the other” were most often regarded as “soft” or “weak” or “out there”.

    Comment by Susan Marie — June 2, 2010 @ 3:04 PM | Reply

  5. Let me clarify a key point:

    “choosing to embrace whatever reality it needs to succeed”.

    Despite the truth!

    The firm, the talking head, the politician, the CEO – all craft their own version of the truth, their own reality – to fit their needs.

    I don’t know about you, but this is no longer tolerable. We’ve got hold these folks accountable to expalin themselves. In response, we’ve got to be willing to take action in alignment with what we value – like moving our money to local banks, opting out of mindless consumerism,turning off the teevee, etc. Otherwise, we will continue to lose all that matters, all that we value and hold dear. Welcome to the Animal Farm y’all.

    (Back in 1969/9th grade I read Orwell’s book Animal Farm. My Dad says I was never the same after that.)

    Comment by Susan Marie — June 2, 2010 @ 3:39 PM | Reply

    • Susan Marie, your points are dead on. We, as a culture, have morphed into the biggest bullies on the block. What did we expect when we began to hold things above people as the ultimate measure of value? “He who dies with the most toys wins”. You’re right, too, that those who show compassion and empathy are seen as soft and weak, and therefore must be weeded out.
      I read today about a case of animal abuse caught on video, where workers were horribly beating and stabbing at cows and calves on a farm, and doing so AS A LARK! “Oh, isn’t this fun? Let’s watch the little calves struggle to get up with broken legs!” It would turn your stomach. But the point is, we have turned our food production facilities into factories – these animals are no longer seen as living, feeling creatures, but as units of production – no less than a jigsaw or a drill bit. Just as the Nazis knew they could do anything to an enemy they dehumanized, we feel no empathy for any but our own tribe, enabling us to exhibit behavior that ranges from merely disrespectful, to hurtful and dangerous.

      Comment by Sandi — June 2, 2010 @ 4:09 PM | Reply

  6. “Plato said that a good person is happy and a happy person is good.”

    Reminds me of my favorite syllogism:

    “Happiness is for pigs.” – Einstein

    “All men are pigs.” – Anonymous Feminist

    Therefore: “All men are happy.”

    These are systemic abuses of an unacknowledged battle between the nation-states and the transnational corporations. Until we wake up to the fact that the transnats could care less about any country, we won’t take the steps necessary to assert control over their activities, i.e., those ‘draconian’ regulations they’re really afraid of.

    Everyone who has thought about it knows exactly what needs to be done but no one has the political will or opportunity to do it. Obama had a once-in-a-century opportunity to make those changes happen but of course he was bought and paid for by the transnats so nothing happened. I am doubtful we’ll ever get another chance like that.

    Comment by Craig Della Penna — June 3, 2010 @ 3:04 PM | Reply

  7. Some consider LLP limited liability partnerships part of the problem. Eg, the excesses at Goldman Sachs might not have happened if GS had not gone public. With corporations taken public it seems the losses are “socialized” either through TBTF or in losses to the investors. (Despite the failures of Lehman Brothers and AIG, their executives were enriched by multi-million dollar earnings. Same for CitiBank.) Some commentators at Baseline Scenario have stated that LLP’s should be banned.

    Comment by tippygolden — June 3, 2010 @ 6:31 PM | Reply


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