Gretchen Morgenson is one of my favorite commentators—at once witty and pertinent. In case you missed her most recent piece about the current business and financial woes, here’s the link (“They’re Shocked, Shocked, About the Mess”).
These short extracts show why I thought the article so relevant. I’ve been saying for months that the root cause of all our problems has been a long-standing, cynical and systematic abuse of trust by executives and those around them. Morgenson writes:
Still, as the stock market continues to grind lower, something more may be at work. And that something centers on trust and credibility, which have been lacking in corporate and government leadership in recent years.Like the boy who cried wolf, corporate and regulatory officials have issued a lot of hogwash over the years. Until recently, investors were willing to believe it. Now they may not be so easily gulled [. . .] Is it any surprise that virulent mistrust seems to own the markets now?
Trust abused is trust destroyed. Those who should have been stewards of other people’s money became salespeople for wheezes designed to enrich only themselves.
We have to rebuild trust, starting by making sure each of us is trustworthy in whatever we do and say. Never mind pointing the finger at the other guy. Start right where you are. If enough people are willing to do that, there’s still hope something good will come from the mess.
Technorati Tags: trust, honesty, ethics, corporate ethics,
October 27th, 2008 at 11:46 am
By trusting and not-trusting it is only the common investor and job holders who pay. The big shots earn it when they play with the trust of others and fill their pocket. When they lose it, the tax-payers pay for their crime and in some cases protect them. Justice seems to absent itself where money plays.
October 27th, 2008 at 4:00 pm
@sambit: Sadly, that is often true. Keep reading, my friend.
October 28th, 2008 at 4:55 am
Carmine
I read Gretchen’s article and just loved it, and the suggested solution she quoted. Clearly, a lack of trust is now a critical problem, but methinks it is the inevitable consequence of the pendulum swinging the other way, because the situation appears to have been caused by too much trust.
Maybe some analysts have failed to do their job in the manner expected, but the fact is that the warnings have been ignored because we have preferred to believe those in charge rather than what our own instincts and common-sense have told us, and even wiser heads like Warren Buffet have been saying for years. The situation has been analgous to everyone travelling at excessive speeds on a very icy highway and relying on their reflexes to get them out of any difficulty. And surprise, surprise it hasn’t worked.
The problem is that when corruption is widely spread, people tend to believe that the self-interest of the people at the top will ensure that things don’t go too far and so also protect them from the consequences. The challenge now is to both root out the endemic corruption AND build in safeguards that prevent it ever happening again, without making the system unwieldy and counter-productive. And that, as you suggest, requires someone you can trust and where do you find such an animal and how do you ensure that they have the power they need?
October 28th, 2008 at 8:06 am
@Bay Jordan: I agree with you, Bay. When I first came to live in the US, I was amazed at the level of trust people seemed to place in everyone in authority, including politicians. As a European, I was used to assuming that all such people had their own interests at heart, not those of the wider public. I didn’t know whether to be touched by the way my neighbors seemed to see good in everyone, or appalled at their naivety.
Nearly 10 years later, the second response is outweighing the first. There are trustworthy people out there, even in politics, but you don’t help them survive and prosper by failing to ‘punish’ those who are shown to have betrayed the public trust. Here and now, those directly responsible for causing the chaos in our finances are, in many cases, staying in their jobs. I even heard on the news yesterday that Wall Street firms have set aside (tax-backed) funds to pay out billions of dollars in ‘performance bonuses’. For what? In a just world, many executives would be facing having to pay back much of the money that they received in the recent past—money derived from actions that deliberately manipulated the markets for direct, personal gain.
Here’s a thought. Much of our (hopefully now discredited) economic orthodoxy completely fails to notice that business ownership has become more and more diluted amongst vast financial institutions. They have little or no direct interest in the running of the businesses they own through their shareholdings. Their interest stops at the quarterly profit figures.
Meanwhile, the vacuum left by this dissolution of direct ownership interest has been filled by the executives, who now run the businesses for their personal monetary gain. Is it any wonder we find that the notion of the common good—or even the idea that business owners might be interested in the longer-term success of their businesses—has almost disappeared? Most institutional ‘investors’ don’t invest: they make money from short-term trading and speculation in securities which might be shares in anything or nothing. They don’t care either way, so long as they can buy low and sell high.
At least in the past, when the greedy baron went too far the population rose up and burned down his castle. Nowadays, we seem to be content to pay his gambling debts from our taxes and set him back on the road to soak us some more.
Keep reading, my friend.
October 28th, 2008 at 2:37 pm
Here’s the money quote for me: “We have to rebuild trust, starting by making sure each of us is trustworthy in whatever we do and say.” Trust, like charity, begins at home.
October 28th, 2008 at 6:36 pm
@Wally Bock: Thanks, Wally. Keep reading, my friend.
October 29th, 2008 at 1:29 am
Carmine
Your response highlights two issues that have long concerned me.
1. The abuse of incentive remuneration to the point that it is now actually a right with the “incentive” element being totally meaningless - an apparently good concept that has been badly implemented and exploited by the “fat cats” who have used it to boost their own already disproportionately high incomes.
2. The pervasive short-termism for which there seems to be less and less counter-balance.
On the basis that it is better to find solutions to problems than to complain, I am endeavouring to address both these with my business proposition, but it is at times a discouragingly hard sell; despite the clamour for innovation and new ideas there remains a remarkable unwillingness to adopt new approaches.
October 29th, 2008 at 8:00 am
@Bay Jordan: Thanks for your comment, Bay. In my own past consulting experience, I also found that people loudly ‘talked the talk’ about innovation, but became extremely nervous when asked to ‘walk the walk’. Sadly, I reached the conclusion that many of our existing leaders had risen to (or beyond) their level of incompetence and were simply clinging on, so afraid to make any changes that they took the appalling risk of simply doing what everyone else did. We are now seeing the results.
In this situation, they have every reason to turn incentives into rights, since many fear they will not reach the threshold for getting them otherwise. Ditto for short-termism: grab it now, since longer experience may prove you don’t deserve it.
I suspect part of the problem may be many years in which actual intelligence and ability were shunned by popular management mythology in favor of promoting on the basis of likability, thinly disguised as the need for team players. Likable ‘good ol’ boys’ rock no boats, but do nothing innovative either. Creative types can be tough to have around as they continually reshape things.
Keep reading, my friend.