Dienstag, Oktober 14, 2008

Where the Blame Lies...

Stefan Stern has a column in the FT today (here) on "How Did We Get Into This Mess?".

The fundamental question he asks, quite rightly so, is how so many banks and financial institutes, employing so many clever folks, made such massive errors in judgment.

Stefan explains this well, but I'd like to expound on it because he comes close, but not close enough to the real problem.


The problem is the fact that you have too many lawyers and accountants in leading positions.

Why do I say this?

Because lawyers and accountants do not really understand the concept of value added in the business place. They may occupy the boss's chair, they may be able to tell them what to do, but their understanding of business is simply too short-sighted and concentrated on one thing: the bottom line.

Both lawyers and accountants are auxiliary professions: they service those who create wealth. A lawyer is expert in knowing what is legal and what may a company do in its business affairs; an accountant is expert in knowing how the present the company's state of business so as to provide management with a clear understanding of resources, commitments and where best to improve productivity (i.e. ensuring that the most productive are kept happy and finding out where the least productive are in order to improve their productivity).

These are honorable professions. The problem arises when a lawyer or accountant is tasked with something outside of their level of expertise.

As Stefan correctly points out, the managers that made companies like IBM, GE and P&G great were dedicated to long-term stability and growth of the companies, rather than maximizing short-term profits. The main job of CEO isn't to do that, but rather to determine strategy, chose the people best capable of realizing that strategy, and supervising them. This works if the person in charge knows the business because they have spent their lives doing it, and knew the problems, opportunities and people involved intimately. Such a person makes the right decisions based on this kind of knowledge intuitively.

As Stefan says, referring to Will and Kenneth Hopper's book "The Puritan Gift": Understanding finance tells people how to fund activities, but not which activities to fund.

The current crisis is above all a management crisis. Only those companies with really good management have mastered the crisis by getting out of markets at a good time and who have managed the crisis, rather than merely looking for any deal that would improve the current quarter's bottom line without regard to what would happen next quarter.

Having an MBA or some other management degree doesn't guarantee that you'll also get a good manager: there are tales aplenty of companies hiring MBAs only to discover to their horror that they have hired very smart people completely resistant to learning actually how to manage a company.

And Stefan's closing remarks are quite correct: management deserves no sympathy at all under these circumstances.

But most of all the blame lies on the promotion of lawyers and accountants (glorified or otherwise) to top management positions well beyond their competencies. In an economy growing strongly, their faults could be ignored, and indeed have been for the last decade. Now, with an economy that will go into recession and which has much excess to recover from (an economic hangover, as it were), real management skills are in demand.

I fear that these are far fewer than one might think.

Keine Kommentare: