Blog > Category: Economic Crisis
Over the past few months there have been a number of books released reviewing, analyzing, and discussing the past two years of economic and governmental change. Here are some of the best of those.
On the Financial Crisis:
How We Got through it:
Two well researched books using first-hand accounts of the 2008 crisis as it unfolded. They both read like fast-paced, exciting novels – except everything here is both real and accurate.
- “Too Big to Fail” by Andrew Ross Sorkin
- “On the Brink” by Ex-Treasury Secretary Henry Paulson
How We Get out of it:
- “The Road from Ruin” by Matthew Bishop and Michael Green – a thoughtful set of ideas of how to get out of our financial peril
- “Too Big to Save” by Robert Pozen, another HBS colleague – a scholarly approach to prevent future crises
Best book on 2008 Presidential campaign:
- “Game Change” by Mark Halperin and John Heileman – fast-paced, inside account of the most dramatic Presidential campaign of our lifetime
Business Development:
- “Winning in Emerging Markets” by Tarun Khanna and Krishna Palepu – excellent new book by my HBS colleagues about succeeding in building businesses in the emerging markets
It’s no secret I have been critical of General Motors management, right up to its bankruptcy filing a year ago. For decades, GM management focused on short-term profits, while it was steadily losing market share – from 53 percent of the U.S. market all the way down to 19 percent. Along the way it was unable to keep pace with international competitors or shifting customer demand and concessions in work rules, health care and pensions to its union that caused the firm to fail when the market collapsed in the fall of 2008.
All that changed rapidly when the Obama administration appointed Ed Whitacre as its chair in July 2009. Whitacre, the highly successful ex-CEO of ATT, took over as CEO as well last fall and immediately started transforming GM into a modern auto company that could compete in both the U.S. and world markets.
He went out on a limb and promised GM would return to profitability within two years and repay its debts to the United States government within seven years. At the time GM was still in the red, while Ford was thriving and Toyota was outpacing both in worldwide production and sales. Furthermore, American consumers were distrustful of General Motors quality and angry that their tax dollars had been used to keep the company on life support.
When Toyota encountered its quality problems earlier this year, Whitacre moved in high gear to capture the available market share. Now he has taken action to fulfill his promises. Not only has General Motors repaid its loan with interest from the United States government, it has continued to improve customer service. Currently, GM is projecting ambitious global growth in 2010 and 2011. In the coming months, the company plans to initiate a public sale of stock, allowing the automaker to regain its independence from the U.S. government.
How did this turnaround happen so rapidly? How did Whitacre restore a bankrupt giant, repay billions to the government, and make bold growth projections for the future?
Whitacre made the tough internal decisions. He shed unprofitable brands like Saturn, Hummer, Saab, and Pontiac, eliminated layers of management, abandoned the company’s fossil-like committee structure, reduced excess global inventory, and closed 1,350 underperforming dealerships. Those were not popular decisions internally or with GM’s bloated dealer structure. But they were necessary steps to shed its losses and transition away from the finance-driven “analysis paralysis” that dominated its management for four decades.
He became the face of the company with the public. With public speeches, press interviews, and even starring in company ads, Whitacre put himself on the line with the American public. Americans wanted a real leader at the helm of GM, and Whitacre was willing to be that person.
He regained trust in the company. By backing up his public promises – and offering himself up as the new face of GM, Whitacre lent personality and warmth to a brand that had become a concrete monolith of stagnation. At risk to his impressive professional career, Whitacre put his reputation on the line. He fought for new customers by making promises about GM’s autos and trucks and their quality, even offering a “money back guarantee.” If nothing else, Americans respect a confident, trustworthy leader who is trying to restore respect for a tattered institutional brand.
He’s not done yet. Whitacre is not one who rests when a preliminary goal is met. In his recent television spot and speeches, it’s clear that he and GM management are focused on improving GM’s product lineup while fulfilling its promises to its customers.
At a time when so many leaders have failed, Americans are pleased to rally around a corporate comeback story built on trust and quality assurance. With Ed Whitacre still at the helm, it’s a comeback story that could keep going for years to come.
Originally Posted on Harvard Business School Working Knowledge
Toyota's tragic automobile recalls offer a historic opportunity for Ford's CEO Alan Mulally and General Motors' new CEO Ed Whitacre. After years of decline, they can reestablish the preeminence of American-made autos if they are wise at leading through this crisis.
In the past month Toyota has recalled almost 9 million vehicles—more than the entire number it sold the past three years. The irony is that Toyota gained significant market share in the past decade at the expense of its American competitors by offering superior quality vehicles. Now quality has become Toyota's Achilles' heel.
"This [process] will take enormous effort, ingenuity, and discipline along with massive investments."
No doubt Toyota will regain some of its lost market share in the short term, to the extent the automaker's production systems can respond by increasing production rates without incurring problems of their own. The bigger question is, will Ford and GM be able to capitalize on this opportunity for the long term?
I was with Whitacre when he initially learned that Toyota was suspending sales of 57 percent of its autos sold in the United States. He responded immediately by directing his executives to ramp-up production as quickly as possible.
While Whitacre and Mulally maximize current sales, taking advantage of this opportunity in the near term is not a long-term strategy. All too often, both GM and Ford have squandered similar opportunities by simply raising prices and profits, as they did during the three-year import quotas in the mid-1980s. They must recognize that no matter how wounded Toyota is in the short term by its quality problems, this company is a very tough and able competitor that will move quickly to revamp its quality and its product offerings.
On the march
GM and Ford need to move aggressively to secure their market share gains by investing windfall profits to make their auto lineups more competitive for the next decade. That means introducing new designs that offer attractive features, improved fuel efficiency, and better customer value along with superior quality. This will take enormous effort, ingenuity, and discipline along with massive investments.
In this regard, Ford has the jump on GM. When Mulally was hired from Boeing in 2006, Ford was in trouble. The company was stretched thin with too many product lines spanning too many countries and appealing to too few consumers. Mulally's first act was to borrow $23.5 billion by mortgaging the entire company to give Ford the runway necessary to retool its aging lineup.
Mulally moved fast, trimming unpopular lines, cutting management layers, and insisting on an R&D overhaul that hurt short-term profits. Having weathered the 2008 crisis without U.S. government support, Ford has $23 billion in cash in the bank and a lineup of eco-friendly automobiles to which U.S. consumers are gravitating.
GM only emerged from bankruptcy last July, when Whitacre was installed by the Obama administration as its new board chair. Since that time, he has acted decisively, removing Fritz Henderson as CEO and assuming the mantle himself. Whitacre quickly reorganized the company from top to bottom, cut out layers of middle management, initiated new product development programs, and revamped GM's international sales and marketing. He also put himself on the firing line, publicly taking ownership for GM's turnaround and appearing in a series of advertisements challenging consumers to compare GM autos with its competitors.
Glimmers of Ford's and GM's potential shone brightly at the Detroit Auto Show last month. Mulally showcased his new model range. Car experts and reviewers alike agreed the new models revitalized Ford. Whitacre also unveiled a new line of cars, admittedly trailing Ford, particularly in hybrids. He boldly predicted GM would be profitable in 2010 and would pay off its government loans.
January sales for Ford and GM jumped 24 percent and nearly 14 percent, respectively, year over year, in spite of high unemployment and low consumer confidence.
Chrysler falls further
In contrast, look at Chrysler and its new CEO, Sergio Marchionne. He ambitiously projected that Chrysler would become profitable in 2010 on an 18 percent increase in sales. Instead, Chrysler sales dropped 8 percent in January. Marchionne has not been aggressive in revamping Chrysler vehicles, repositioning the company's brand, or reorganizing its beleaguered management. As a result, it is falling further behind and missing this golden opportunity.
The last and perhaps most important lesson for leaders going through a crisis is that they cannot just play defense by cutting costs and waiting for the crisis to pass. They have to go on offense simultaneously by transforming their organizations and investing heavily in revamping their products and their marketing to focus on winning now.
That's precisely what Mulally and Whitacre are doing. They may not be automobile industry veterans, but they are highly competitive leaders, skilled at winning in the marketplace. The American automobile industry is a lot stronger today because of their decisive, visionary leadership.
Originally Posted in the Wall Street Journal February 3, 2010
The grim news on jobs confirms the reality that many economists are unwilling to face: American jobs continue on a steady downward slide, with no tangible signs of recovery. As if to epitomize this trend, UPS – that bell-weather of the American economy – raised its 2010 earnings projections as it announced layoffs of 1,800 more of its 405,000 employees.
The first decade of the new millennium will go down in history as “the lost decade” in business. Consider the ugly facts:
- At decade’s end, 25 million Americans – 17.3 percent of the workforce – are searching for full-time work but cannot find jobs.
- In the past decade, the U.S. lost fully one-third of its manufacturing workforce.
- Information technology – the bright spot of job growth in the 1990s – was down 21 percent.
- The only growing sectors – education (up 32 percent), health care (up 30 percent), and government (up 9 percent) – are all funded primarily with taxpayer dollars. As the U.S. continues to shift away from the private sector, government deficits mount.
- The stock market began the decade with the S&P 500 index at 1,469 and ended at 1,115 – down 24 percent. This marked the first decade of declining stock prices, even after the S&P turned in a 24 percent gain in 2009.
- Real wages declined for the first decade since the Great Depression.
“Quick fix” programs like those included in last winter’s stimulus bill will not curb these long-term structural trends. Getting a significant proportion of those 25 million unemployed Americans back to work requires us to shift from a spending economy focused on “instant gratification” to an investment economy willing to support long-term programs that restore America’s economic dominance. If we fail to do so, the U.S. will enter an extended period of stagnation much like Europe and Japan.
Is there a culprit for these trends? Finger-pointing abounds, but I believe the root cause is leaders practicing short-termism.
In the 1980s and 1990s, America looked up to business leaders who created growing companies, dominated world markets, and employed millions in well-paying jobs. Today’s business leaders are so poorly trusted that they rank near the bottom of every poll.
Looking back at the last decade, it’s not hard to see why. The 2000s began with the Enron scandal and ended with global financial market meltdowns. In between, we were treated to the mischief of Bernie Ebbers of WorldCom, Richard Scrushy of Health South, Dennis Koslowski of Tyco, and the infamous Bernie Madoff, all of whom have joined Enron’s Jeff Skilling behind prison bars.
The leadership issues go much deeper than a few high-level crooks tossed in the clinker. As I wrote in Authentic Leadership, capitalism became the victim of its own success. In the early part of the decade, hundreds of corporations restated their revenues and earnings as their leaders were exposed for accounting manipulations that hyped stock prices to maximize shareholder value. In the process many formerly great companies like General Motors, the original AT&T, Sears, and K-Mart were destroyed.
Following the 2003 passage of Sarbanes-Oxley, many corporations cleaned up their acts. They replaced their CEOs with new leaders who have a long-term perspective on serving customers and building shareholder value.
Unfortunately, many Wall Street leaders never got the message. They continued to play the short-term game with excessive risk-taking and leverage. In the infamous words of Citigroup’s Chuck Prince: “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.” In 2008 the boomerang Wall Street threw at the corporate world came back and hit it in the head, knocking out Lehman Brothers, AIG, Bear Stearns, Fannie Mae, and Citi, just to name a few.
In the 20th century, the United States became the world’s dominant economy thanks to leaders like Ford’s Henry Ford, General Motors’ Alfred P. Sloan, IBM’s Thomas Watson, General Electric’s Jack Welch, and Hewlett-Packard’s Dave Packard and Bill Hewlett. In recent years it was sustained by the dynamism of entrepreneurs like Microsoft’s Bill Gates, Intel’s Gordon Moore and Andy Grove, Apple’s Steve Jobs, Wal-Mart’s Sam Walton, and Starbucks’ Howard Schultz.
All of these leaders – and many more like them – believed their task was to build great corporate institutions that could dominate world markets by serving their customers with innovative products and superior services. But many people bought into Milton Friedman’s view that the purpose of the corporation is to maximize shareholder value. They were handsomely rewarded for delivering short-term results, but their collective behavior led to the destruction of long-term shareholder value, and in many cases their institutions as well.
What’s ahead for the next decade? Often a severe crisis is required to lay the groundwork for a major transformation in leadership. That’s exactly what is happening now. A new generation of corporate leaders is stepping forward that recognizes their responsibilities go well beyond enriching their shareholders and themselves. These new leaders recognize their corporations are chartered to serve society by creating value for their customers, sustainable jobs, and lasting value for their owners.
These new leaders face the challenge of building their corporations while at the same time rebuilding America’s dominance of the world economy. Rather than criticizing them, we should get behind their efforts.
Originally posted on BusinessWeek.com on Tuesday, November 24, 2009.
The stock market seems well on its way to recovering from the financial crisis, but a deep scar from the recession remains. Americans lack confidence in the nation's leadership to address the challenges we currently face.
The Harvard Center for Public Leadership's 2009 National Leadership Index reveals that 69% of Americans think we have a leadership crisis in the country. Another 67% believe that "unless we get better leaders, the United States will decline as a nation."
At the bottom of the index's ranking of confidence in leadership are Wall Street leaders, closely followed by news media, Congressional, and business leaders. It is tempting for leaders to view these dismal results as a public relations issue emanating from the economic downturn. But this is not a PR problem: It's a leadership problem.
We opened this decade with a wave of appalling leadership failures. Ken Lay and Jeff Skilling of Enron, Bernie Ebbers of WorldCom, Joseph Nacchio of Qwest, and Dennis Kozlowski of Tyco blatantly disregarded the ethical and legal responsibilities entrusted to them by their shareholders.
IMPERATIVE: REBUILD PUBLIC TRUST
We are closing the decade with another wave of leadership failures. Dick Fuld of Lehman, Alan Schwartz of Bear Stearns, Angelo Mozillo of Countrywide Financial, and Chuck Prince of Citigroup (C) sacrificed financial prudence for the possibility of extraordinary short-term gains. Their decisions obliterated billions of dollars of economic wealth and almost destroyed the nation's financial system.
This crisis won't be over until a new generation of leaders emerges that understands that long-term institutional stewardship and maintaining public trust are the two imperatives of 21st century leadership.
Far too many leaders fell into the trap of believing that the purpose of business is to maximize shareholder value and reap personal rewards, rather than serve customers and the society they operate in. In my experience, those that focus primarily on maximizing shareholder value—usually with a short-term focus—are more likely to wind up destroying the value they create.
A recent study of the Standard & Poor's index of 700 international stocks from 1998 to 2009 shows that only 3 of the top 15 winners are U.S. companies—Apple (AAPL), Amazon (AMZN), and Oracle (ORCL)—all headed by leaders with long-term focus. The 5 worst U.S. stocks were AIG, Eastman Kodak (EK), Citigroup, Ford (F), and Bristol-Myers Squibb (BMY). All had leaders with a short-term focus. This list excludes GM, K-Mart, Enron, WorldCom, and Lehman because they declared bankruptcy.
VALUING CUSTOMERS BUILDS SHARE PRICES
Long-term leaders recognize that they cannot rely upon cost-cutting, acquisitions, and other short-term moves to create sustainable value. By focusing clearly on long-term missions, values, and strategies, they earn and keep the trust of their customers, employees, and the society they serve.
The key to creating sustainable shareholder value is to provide superior value to your customers. Such companies as Johnson & Johnson (JNJ), Target (TGT), Google (GOOG), Medtronic (MDT) (where I served as CEO from 1991 to 2001), and Wells Fargo (WFC) focus on their mission and values, which is what motivates their employees. When a company does these things well, revenues and profits expand and sustainable shareholder value follows.
A number of emerging progressive corporate leaders recognize the need for long-term focus to create sustainable value. For example, IBM's (IBM) Sam Palmisano embarked upon a seven-year "leading by values" initiative to reposition the firm globally, emphasizing its service businesses. Indra Nooyi committed PepsiCo (PEP) to a long-term focus on expanding healthy food and beverage offerings. Dan Vasella of Novartis (NVS) invested heavily in drug and vaccine research to prevent and treat intractable diseases. John Chambers is making acquisitions during the downturn to prepare Cisco (CSCO) to lead a new productivity expansion. Amazon's Jeff Bezos keeps introducing product innovations such as the Kindle—even though they take five to seven years to pay off.
In an earlier era, Walter Wriston of Citigroup and John Whitehead of Goldman Sachs (GS) (a company on whose board I currently serve) capably steered the financial markets with honesty, intelligence, and dignity. While many firms were failing in 2008, three Wall Street leaders emerged. J.P. Morgan Chase's (JPM) Jamie Dimon created a culture of candor, enabling his bank to successfully navigate the financial crisis. Goldman Sachs' Lloyd Blankfein built effective risk management into the bank's DNA. John Stumpf emphasized Wells Fargo's core strengths and focused on commercial banking, using the crisis to strengthen its franchise.
The path to restoring the public's confidence and trust in business leaders is clear. We need leaders who are committed to sustainable growth over short-term gains and who serve society by creating long-term value.
Last month the Dow hit 10,000 for the first time since the 2008 financial crisis. That same day I wrote a blog cautioning those who celebrated the number as a sign of post-recession resurgence.
Last Friday the Department of Labor released its latest report. The news is decidedly grim. Despite a climbing Dow and increased investor confidence, unemployment currently hovers at 10.2% (17.5%+ if you consider underemployed workers).
Last night the Dow rallied again to close at 10,226.94, its highest finish since Oct. 3, 2008. Meanwhile, the predicament of the American worker remains the same. By year’s end, 9.36 million men and women will be out of a job. The Dow’s showing, though encouraging, doesn’t reflect the struggle to survive on Main Street. In fact, there is an unfortunate inverse relationship emerging: as the Dow increases, the number of jobs decreases. As financial markets improve, the real economy’s condition worsens.
It is not that the Dow increase doesn’t reflect any improvement – it’s a positive sign that investor confidence is on the rise. But to tout it as the first charge of an 18-year bull market (as pundits are doing in likening our situation to the 1983 market upswing) is irresponsible and misleading.
Henry Blodget wrote an insightful piece yesterday to explain why 2009 is so vastly different from 1983, and why we’re not necessarily on a repeat course. On top of stocks already being expensive and consumers staring down nearly 100% more debt, interest rates are currently at rock bottom (it was a decrease in record high rates beginning in 1983 which helped usher in the Bull Market).
What concerns me is the speed with which the media, certain economists, and many on Wall Street assume that one minor improvement is the first flake in a growing snowball of profit. By hastily taking advantage of rock-bottom interest rates and a falling dollar – and betting on governments’ sustained stimulus-supported economy – investors risk creating a recovery bubble that has the potential to burst when stimuli are removed.
In effect, this latest jump could become the spike before another lull; or worse, a plummet.
It’s imperative we not assume that Dow jumps or dollar rebounds will automatically spark an inevitable recovery. At this point, nothing is inevitable – neither the speed of recovery nor the shape of the recovery itself. We must continue to look for long-lasting solutions, such as abstaining from short-term investing and incentivizing responsible behavior.
Make no mistake – it’s not 1983. Don’t uncork the champagne just yet.
Fiats and Alfa Romeos will cruise America’s streets again. But just how many is up to the American consumer.
According to the New York Times, Chrysler will unveil a new product line next week, cutting several poorly performing models – like the Chrysler Sebring – to make room for joint Chrysler-Fiat CEO Sergio Marchionne’s foreign high-performers, like the Fiat 500.
And in splitting the Dodge brand into separate “Dodge Car” and “Ram Truck” divisions, Mr. Marchionne will have expanded the Chrysler company into six unique brands – this, while General Motors is scaling back its number of brands to four.
This is all part of an aggressive strategy by Mr. Marchionne to regain Chrysler’s dwindling market cap, and make new strides with two somewhat familiar but mainly exotic (and “environmentally smart”) brands, Fiat and Alfa Romeo.
Given this refreshed approach, bolstered by new brands and a dynamic, consumer oriented leadership under Mr. Marchionne, could we be on the verge of a consumer return to Chrysler?
As one New York Times source said, “I’m sure Americans love Italian suits. Whether they love Italian cars is yet to be seen.”
From a business leadership standpoint I applaud Mr. Marchionne’s confidence and ambition during this American automobile crisis. He is eliminating sources of waste, i.e. poor performing cars, and introducing new vehicles and technology that are likely to appeal to today’s car buyer who is seeking lower costs and higher efficiency.
However, the main unknown in this equation is whether or not the American consumer is ready to put their trust back in what is now a tainted Chrysler brand. The financial crisis not only rocked the automobile industry, it shook consumer confidence in American cars, and Chrysler is no stranger to this trend having seen sales drop 42% in September.
American cars have been outperformed by foreign competitors for years, but its yet to be seen whether this infusion of Italian innovation is enough to bring Chrysler back to market relevancy.
Today’s news cycle marks the first wave of reaction to the Treasury and Federal Reserve’s announcements on Wall Street compensation. Inevitably, speculation has abounded as to the new policies’ long-term impact on Wall Street.
Critics howl that pay regulations will create a talent vacuum with top executives and traders heading for greener, i.e. less regulated, pastures. Others rumble that regulations aren’t restrictive enough and simply allow firms to keep total compensation the same by changing the way it’s doled out. Still others, while significantly less skeptical, believe that shareholders must take an active role in regulating compensation. President Obama shares this view as well.
I agree that a change in Wall Street culture is needed, but executive compensation is just pulling at the weeds of the larger problem. I think the main problem is the culture of short-termism – investing for short-term gains at the expense of long-term planning – that has taken root on Wall Street. We should align our efforts around combating this culture instead of setting arbitrary limits on compensation.
In my experience, the best way to enact long-term behavioral change is by incentivizing it. That’s why I’ve joined the likes of Warren Buffett and John Bogle in signing the Aspen Institute's Statement “Overcoming Short-Termism.” In promoting these ideals, we can reach the desired end of a responsible financial and banking sector and can maintain that change across the long term.
I’m currently writing an article where I take a deeper dive on this very subject. I‘ll be sure to post it here as I will be very interested to garner everyone’s feedback.
My post today originally appeared in the NY Times Deal Book yesterday, and I’ve already received a great deal of feedback. I’ve been pleased in that regard, as I had hoped this nuanced perspective would get people thinking about the issues. I’m currently reviewing those comments, and will be putting a post together tomorrow with some thoughts to continue the conversation.
Let’s Stop Vilifying the Bankers
Throughout the country, the anger at bankers is palpable. This isn’t a narrow populist phenomenon; rather, it reflects widespread mistrust in the nation’s financial institutions. A “Bank Anger” tour has percolated across the blogosphere. “I Hate Banks” yields 70,000 Google Index results.
The vitriol is not restricted to the blogosphere. Mainstream commentators have roundly condemned financial institutions. Keith Olbermann of MSNBC rants: “Break up the banks. Regulate the financial industries to within an inch of their existences.”
Members of Congress are also piling on. Representative Barney Frank, Democrat of Massachusetts, says big banks are “discredited” on Capitol Hill. Senator Christopher J. Dodd, Democrat of Connecticut, has moved to impose limits on bonuses without limiting salaries. In response, the boards of the American International Group and Wells Fargo just increased their chief executives’ salaries to record levels.
The frustration of Americans is understandable. It is natural for citizens struggling to find jobs, avoid excess interest charges on unpaid credit card bills, and live off their shrinking 401(k)s to ventilate anger against bankers and their compensation excesses.
There can be little doubt that the excessive risk-taking by bankers who aggressively hawked subprime mortgages and credit cards to earn high fees imposed enormous hardships on the American public. The worst offenders — Citigroup, Washington Mutual and Wachovia — irresponsibly over-leveraged their balance sheets and forced the United States government to step in to avoid complete collapse of the system. These banks and investment bank counterparts like Merrill Lynch, Lehman Brothers and Bear Stearns paid their price.
Unfortunately, the sins of the wrongdoers created a public relations problem for the remaining banks — at precisely the wrong time.
Leading bankers like Jamie Dimon of JPMorgan Chase and Lloyd C. Blankfein of Goldman Sachs (where I serve on the board) are calling for an industry self-assessment. Mr. Blankfein’s well-received speech to the Council of Institutional Investors in March was a humble and honest appraisal of the industry’s shortcomings:
“We held ourselves up as the experts, and the loss of public confidence from failing to live up to the expectations that we created will take years to rebuild. Worse, compensation decisions at banks that destroyed shareholder value look self-serving and greedy.”
Many pundits are advocating an increased role for government in regulating banking behavior and managing compensation. Past attempts along these lines have proven counterproductive and have produced unintended consequences. Yet in response to the public anger, such proposals are inevitable.
The danger is that we will punish healthy banks for the sins of failed banks. Most bankers have behaved responsibly throughout the crisis. This is the wrong time to tie their hands. Instead, we need these banks to get back to their chartered roles: to provide financial resources to consumers and businesses — large and small, new and old.
Commercial and investment banks are the backbone of American commerce. They provide the capital for business expansion and new company formation. In the past 20 years, 70 percent of all jobs have been created by start-up companies and small businesses. But the lack of available financing in the past year has severely crimped the ability of small businesses to grow their business and to add jobs. New company start-ups are finding it extremely difficult to get any financing.
Continuing to vilify all bankers will create a vicious cycle: It will fan the flames leading to excessive regulations. This will cause banks to pull back and lend less, thereby crimping expansion by small business and shutting down start-ups. This will intensify the jobs crisis and throw the United States into a double-dip recession.
But the banks can’t just retreat or lobby to stave off all regulation. Instead, they need to go on the offensive by advocating responsible regulations that reward sound practices and constrain and punish the egregious ones. They need to recognize the desperate needs of small businesses and start-ups and provide the funds they require. And they need to show marked restraint in cash compensation, rewarding only long-term performance with long-term rewards.
Let’s stop vilifying the bankers. The current public sentiment towards banks misses the forest for the trees. Anger is rarely cathartic. In this recession, it has become counterproductive.
The economic crisis was set off by an unbalanced approach to risk management, but the “antibank” rhetoric is an unbalanced reaction to the vital role banks must play in rebuilding trust and fueling economic growth. A blanket indictment of the entire system defeats the essential role that well-functioning banks must play in rebuilding the vitality of the American economy.
I just did the math – again, I’m an engineer at heart – and saw that my team and I put together 17 total blogs from the World Business Forum.
That’s a lot of reading, so I thought it best to compile a “greatest hits” of sorts so that the folks who weren’t able to attend can get the inside scoop. And all are linked back to the original post if you’d like to take a deeper dive.
Paul Krugman on FINANCIAL INNOVATION: Other than ATMs, name a financial innovation that really was a good thing. How many were about making markets more efficient? How many were about regulatory arbitrage or evasion? Keynes said, “We have bundled in the handling of a complex machine, the workings of which we do not understand.”
The burden of proof really should remain on the financial innovator. You don’t ban stuff, but you can increase transparency. The fight is on in the USA for a consumer financial production agency. This would require plain vanilla products, and the industry is worried that this is what people will choose. They’re also concerned about the enforcement of increased capital for financial institutions. Simply, the rewards are diminished.
Bill Clinton on CLIMATE CHANGE & GLOBAL WARMING: There are many people who question whether climate change is as important as 95% of all scientists claim it to be. “But when I think about the future of my children and grandchildren, I don’t want to bet that only 5% of people are right.”
Gary Hamel, on EXPLORING THE FRINGE & EXPERIMENTING: You have to look beyond benchmarking the Fortune 500 to make progress. You have to look at the fringe. The Grameen Bank is a prime example of an organization that operates strictly outside the lines set by previous success stories, and managed to success anyway (or rather, because).
Nobody will give you permission to be revolutionary. Nobody will ask you “blow up something, and see what happens.” So, you have to be revolutionary. Are you thinking about creating a number of risk-bounded management experiments every year? You should be.
Kevin Roberts on EMBRACING THE “PARTICIPATION ECONOMY”: We have moved from the attention to the attraction to the participation economy. People are their own medium, their own creation. This generation today is the “creatives.” You have to let them in. We have moved from a world all about informing (the world of marketing as we know it today)… we have moved from “ROI.” (btw, Mr. CFO, “If we knew the answer on ROI, you idiot, we wouldn’t just be doing what we’re doing.”) The world that we live in now is a world of inspiration, not an age of process or cost-cutting. We just give the consumer a fantastic idea, thank God. Let consumers move your ideas along. They want to interact. Measure “Return on Involvement” not “Return on Investment.” It’s not about a market, it’s about a movement. Obama created a movement about inspiration and interaction.
George Lucas, on BUSINESS: My father taught me to “buy low, sell high, and never borrow money” … I pay attention to industries that are around my industry. Steve Jobs really does know what he’s doing. He’s amazing. He has created something. Who would have thought they’d make cell phones 20 years ago? That is coming up with great ideas.
David Rubenstein asks, “Where would I invest?”:
- Distressed investing and turnarounds.
- Government-supported industries
- Energy; carbon-related and alternative energy
- Healthcare. Will increase 17% to 20% of GDP
- Natural resources (oil and water)
- Emerging markets
Pat Lencioni on CONFLICT: If you have a marriage where you don’t argue, you don’t have a good marriage. Great relationships are built on the ability to disagree—even passionately. Great teams debate things. Conflict is almost always lacking. Because CEOs don’t want people to get their feelings hurt. The organization where people get their feelings hurt the most is church. When you don’t have conflict around issues and ideas, it ferments into conflict around people.
Bill Conaty’s Four Essential Talent Management Functions:
- Attract: Hire outstanding talent. This is important, but it’s just the beginning
- Develop: Provide opportunities for people to excel, develop their skills, and to achieve their dreams
- Assess: Create and rigorously manage a performance-driven culture
- Retain: Keep employees with high performance
And finally (though not trying to toot my own horn…)
Me on PRINCIPLED LEADERSHIP: Robert F. Kennedy said that few will have the greatness to bend history. The sum total of all our efforts will shape history. A small group of people are going to tackle the great problems of today: global health, energy, job creation, peace. What role will you pay?
