Where Were the Goverance Grownups?By Faisal Hoque | Posted 2008-09-24 Email Print
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The lenders, the borrowers and the pundits all now say we should have seen the financial crisis coming. The politicians are spinning to solve a crisis they had a hand in creating. The real question here is where was the real business governance? The failures of Wall Street, government agencies and financial institutions to police themselves begs the question: Do governance, business ethics and business models need to be redefined?
Where Were the Governance Grownups?
‘Governance’ has been a hot business buzzword for some years. Most every corporate Web site has a button for it. But where was it? What good did it do? Did it do anything?
The Wall Street Journal reported “Just three of Lehman’s 10 outside directors have direct experience in the financial-services industry. ‘For an extremely complex financial institution like Lehman, that set of directors probably wasn’t the best group to populate its board–or help prevent its collapse,’ contends Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware business school. A Lehman spokesman declined to comment.”
We’ll get a whole new kind of governance now, one run by Washington. Over the years, there have been efforts there to rein in some of the worst of the game’s excesses, but they were defeated. How else would we explain the continuous, excessive rewards for executives and bankers, regardless of their performance? I’m not choosing one political side or the other. But if I had to write a business-focused follow-on to John F. Kennedy’s Profiles in Courage, would I have enough material?
Facts–Should We Care?
Is this really the information age? We’ve spent billions on information technology, and yet we were practically blind as we created the biggest economic folly in decades. Shaky mortgages by the pound were bundled with good ones–and nobody knew which was which. We just trusted the magic to make it all OK. Did anyone really know what a “collateralized debt obligation” was? No problem, if someone else would take it.
By one report, moves by former New York Attorney General Eliot Spitzer forced a restructuring on Wall Street that made research analysts uneconomical, and today, there are about half as many as the Street employed in 2000.
Brad Hintz, who covers brokerages for Sanford C. Bernstein, told Barron's, "Research analysts have gone the way of high-button shoes and buggy whips."
Just another contributor to our blindness. Doing the right thing requires knowing the right thing. Should it even be debated that fact-based, rational decision-making must be part of today’s enterprise DNA?