Tuesday, April 27, 2010

Accountability and Denials: the Financial Reform and Climate Change Debates

At a time when everyone is wondering what is going to happen to the economy if reform does not come quickly, financial institutions’ executives and bankers are finding numerous ways to deny the obvious: the excesses of their industry nearly brought the economy to a grinding halt. At a time when Senate’s Permanent Subcommittee on Investigations had began exploring what exactly went wrong two years ago when boggled derivatives, mortgage debacle and felicitous insurance instruments nearly called to question the viability of the US dollar as an international currency, top bankers are denying that they abetted the housing market would fail, played the market by selling sub-prime mortgages, mopped them up, and shuddered the responsibility of their failures to the taxpayers. Finance Executives challenged the allegation around the practices in their industry, retorting, “We are just part of an industry that was doing things that are not necessarily the main reason for the failure of the financial market.” Really?

Ask the petro-chemical and oil industries’ executives similar questions regarding their oil refining and exploration practices and you would probably get similar response: we are not solely responsible for the pollution of the water bodies or the immediate environment in off-shore drilling. Not withstanding the preponderance of evidence against these two industries, both will continue to deny responsibility for their actions. It is not surprising that leaders in industries that have established expectations, who attempt to minimize risk in business decisions, will go to the extent of pleading the fifth, when the question of accountability is raised regarding their business practices. Business executives never accept responsibility, even in the most dire circumstances.

Why do things as these happen? Most executives always underestimate their poor judgment and often shift responsibility for their actions elsewhere. We have all watched our neighbors who were not qualified for home loans offered sweet deals and even handed flat-screen televisions to cover the deadly ARM-loans that are more than toxic, that were sold to them. We all saw brokers and securities firms executives behave like prodigal sons as they squandered the trusts of their clients, selling bundled poor instruments as viable investments products while at the same time insuring against the possibility of these products failing in the market place. Oil and carbon-based fuel executives watch deadly explosions lead to deaths of their employees due to poor safety standards around their mines and drilling platforms and still insist it is not completely atonality to their negligence and ineptitude in monitoring and managing exploration activities.

You see, corporate executives are schooled in the art of substitutions: When accountability fails, lower expectations to accommodate change, substitute alternatives for non-performers and interchange expectations to help you deliver the desired results. Coming from this type of background or philosophy, it is no surprise that you find David Viniar, Goldman Sachs’s Chief Financial Officer telling the Sennate investigative panel: “We share the responsibility for the financial crisis… we care very much about ethic at Goldman Sachs”. This and other statements made all day by the Chief Executive Officer of the most profitable securities firm in Wall Street history, Lloyd Blankfeindo, fail to speak to the issue of claiming responsibility for the allegation against their firm and or industry; including impropriety in the way their company sold mortgage-linked investments. And if the Chairman of the investigative panel, Senator Levin, was looking for the securities firm executives to fess up to their mistakes and distasteful behavior, he probably did not get much. All he probably came out with are: these men do not think they have a duty to their clients or the American investors, to deal uprightly and prevent the failed financial instruments. For them, in all cases, failure or success of a finacial instrument, they win! They win when they recoup excessive profits, they win when the investment instruments tank, they win when their firm is considered too big to fail and thus shored up with tax payers money; and, they win when they are given millions in severance payments as they move away from Wall street in their golden parachuttes for blissful places over the globe. What a way to go!

You could probably substitute the executives of the financial industries for those of the big oil company, who just had a spill in the Louisiana coast or the coal mining firm executives at Massey Energy of West Virginia denying that their mining safety records are something to look keenly at and that their activities pollute the environment, kill people and wild life; and, probably contribute more to the disproportionate climatic changes that is alluded to by many in the environmental conservation world. Following the denial of responsibility, the executives of the oil and coal firms would maintain their innocence, probably plead the fifth if necessary and engage in double take to ensure that conversations about their practices and executive decisions does not expose them to scrunity in an environment of accountability.

The question of how did these happen, are often met with some cold face, hand-wriggling and sometimes arrogance that continue to baffle many, outside these industries. To the outsider, the question, how do these people go to their beds at night and still sleep peacefully, is justifiable. To these Chief Executives, this is just another day of doing business. We don’t have to take responsibility for our actions, we must not accept negative criticisms of our actions, because we are considered the industry leaders and the best that is, and we must always portray the “Mr. Nice guy” posture associated with our office or profile. Rather than face the reality of their failures, the consequences of their actions or in actions, they always prefer to feign ignorance, deny their predicaments and cite some other issues that have no relevance to the matter at hand, as the reason for the failure of their executive decisions or actions; and, not what is predominantly accepted as the reason(s) among the observers and sometimes, the industries’ insiders, as the causes of the crisis or problems.

To help the Chief executives appreciate the gravity of their respective actions or inaction and the essence of claiming responsibility for the sake of accountability, I will proface the following recommendations in line with the suggestions of one of the executives of a Methodist hospital in Ohio, Ohio Riverside Methodist Church Executive, Mr. Andy Manzer:
1) Acknowledge that your action as an executive does have implications and there is always a need to demonstrate accountability in whatever decisions you make regarding your organization's processes;
2) Always endeavor to find out why your acceptance or denial of responsibility is impacting your sense of accountability and costing many in your industry and those outside, money every time;
3) Address barriers to accountability within your industry and executive suites and fight the ingratitude or arrogance so endemic with your profile or executive office;
4) Get educated about the importance of accountability and develop a common understanding of its relevance to the business enterprise or portfolios in your company;
5) Make clear agreements for accountability and discuss their consequences upfront with all your employees and partners;
6) Commit to "calling out" lack of accountability in all your business and executive processes; and
7) Communicate from top to bottom accountability message and why all in the industry and your company must now take it very seriously.

It is only by doing all of these and more, can we start mending the fences, healing the wounds or making atonement for the sins or in actions that precipitated the last national financial debacle or crises, or the last accident mishaps or the pollution of the environment from oil spills.
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