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Oct-09-2008 20:14printcomments

The Price of Capitalism Without Ethics: The U.S. Credit Crisis

The credit crisis is the direct result of leadership not effectively creating a culture of ethical action and system of management that demands accountability.

Exxon CEO Lee Raymond
Exxon CEO Lee Raymond, a man at the top of the food chain in terms of overpaid CEO's in America. Courtesy: adamcadre.ac

(PORTLAND, Ore.) - The world’s most powerful economy is in peril thanks to another bout of deception, denial, greed and collusion. Two powerful forces -- the pressure to continually grow earnings coupled with wildly competitive markets supercharged by the internet –have revealed a fissure a mile wide in CEO morality, leadership and management skills.

What happened at Washington Mutual that caused its collapse? And, what was going on at Chase that has allowed them to prosper in the mortgage loan crisis? The price of those who failed will affect every American, so I believe we must understand the root cause.

Pressure to grow quarterly earnings demands organizations continually improve performance – and one of a CEOs most important jobs is to put in place an engine to drive that performance. If the CEOs expectation is that everyone works harder as opposed to smarter, the top has set the tone. When the organization honors and rewards the top performer based purely on numbers -- without regard to how they were achieved --the real moral expectations are revealed. Competitive pressures are great at revealing every ethically grey twist and turn, and after awhile, normally ethically people begin to question their own sense of right or wrong. When we set our moral compass by looking at what our competitors are doing we’re in trouble.

The internet has done nothing but heighten the competitive pressure, but it also has added another dynamic. The web has created the era of mass customization; today as buyers we have many more sellers to choose from and so to compete, the sellers customize their solutions to meet our needs. Competing in this environment demands flexibility – and that flexibility comes in many forms. I believe in the mortgage crises competitive pressures were so great that mortgage loan professionals began to “look the other way” with regards to financial qualifications of their buyers – after all, everyone else was doing it.

So, how does the pressure to make earnings combined with the mass customization realities of the internet point to a failure in CEO morality, leadership and management? It’s pretty simple: it’s their job to understand these sophisticated dynamics and to lead their companies through the maze.

I believe the pressure to grow earnings each quarter, combined with a mass customization marketplace, demands a new kind of organizational thinking on the part of the CEO – not only to succeed competitively, but also to do so while living up to a decent set of moral standards. The failing, I believe, is rooted deeply in outdated leadership and managerial practices.

Leaders are obligated today to create a healthy “being” environment for their organizations. Well-crafted values won’t suffice -- the key is the environment the leader creates through his or her own behavior. Contradictory behavior by the CEO – or tolerance of it – reverberates as truth through the organization. Additionally, leaders must manage the “doing” environment. To ensure ethical behavior is in place in their managerial capacity leaders must create a managerial system where appropriate controls establish the boundaries of actions to ensure business effectiveness and ethical responsibility.

In the end, the credit crisis is the direct result of leadership not effectively creating a culture of ethical action and system of management that demands accountability. While the words are there, the look-the-other way ethic that lives up and down the corporation’s layers is the direct responsibility of its leader. The credit crisis was caused by a leadership lapse of epic proportions.


John Bernard is a founding partner of 10x Incorporated (10xinc.com), a Portland, Oregon-based organizational development consultancy focused on employee engagement. He can be reached at john.bernard@10xinc.com.




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Henry Ruark October 12, 2008 9:32 am (Pacific time)

To all: Here’s “see with own eyes” re reality in the Reagan era highly relevant to this thread:: “The financial crisis has brought down the curtain on a wide range of basic and enduring tenets also closely linked with the Reagan era, those associated with neoliberal economics, the system that the Nobel Prize-winning economist Joseph Stiglitz has called “that grab-bag of ideas based on the fundamentalist notion that markets are self-correcting, allocate resources efficiently, and serve the public interest well”. -------------------- Quoted verbatim from Financial Fallout; David Rothkop; WPost writer; in Sunday Edition of Register/Guard 10/12.


Henry Ruark October 11, 2008 11:09 am (Pacific time)

"Anon": You wrote:"...end entitlement welfare programs." Have you ever been forced to partake of any such program ? Was your struggling family ever aided to survive via any such program ? Hungry otherwise ? If not,you speak from very limited and very lucky experience. Millions more are about to find out how necessary and moral such assistance can be when absolutely required. I hope you and yours will not be among those. Reagan-era outmoded mythical misinformation dies hard, as current events are teaching many who paid no attention previously.


Henry Ruark October 10, 2008 4:43 pm (Pacific time)

"Anon": SO how would you measure teacher performance ? It's your point, so you should be prepared to describe in detail wha you would measure and how you would measure it. Await your detailed answer with delight, since market is hot and ready for precisely that product, and I know where we can sell it for millions.


Anonymous October 10, 2008 1:59 pm (Pacific time)

Measure teachers performance and throw out the bad ones. Look at our public educatonal system! All the unions do is provide more PAC funding to the legislators who continue to throw money away by maintaining low performing teachers who can only offer excuses. Another way to measure success is to end entitlement welfare programs.


Henry Ruark October 10, 2008 11:36 am (Pacific time)

Angela et al:  Glen does NOT simply refine "failure". His point is heart of matter via action-demanded after historic repetition of same sequence(s) birthing the Big One (Depression, that is!). I was there then, can speak to the point. "Self-correcting" is NOT just misnomer, but neocon framing designed to foster confidence in false-system. "There ain't never no free lunch", which is what concept of "self-correcting" contends.
For very clear description of realistic capitalist-system operations NOW, see recent book by Robert Reich, titled "Supercapitalism: The Transformation of Business, Democracy, and Everyday Life"; ISBN 978-0-307-26581-6. Joseph Stiglitz re book:"...a reassessment of capitalism and recommendations for how to fix the mess we're in". He's Nobel-winning Laureate in economics. You will both enjoy and learn from Reich, who is practical idealist, as I did, too !


Wingnut October 10, 2008 7:01 am (Pacific time)

Well said, Glen! There are MANY MANY criteria and characteristics to measure value-with... not just greenpaper worth and/or entitles-of-ownership worth. We could try intelligence, logic, fairness, reusability, repairability, nobility, intestinal fortitude, love, the list goes on and on. Author, we should be MORE concerned with 'economies without ethics'. See the pyramid scheme symbol on the back of the USA dollar bill? Well, pyramids are caused by "rat-racing" or "cookieplate chasing"... related to shopping/enjoyment addictions. Pyramids happen in economies when... inequality and servitude is legal (bossing, ordering, forcing). For example, there is a blatant parental policy reversal seen when USA kids turn 18. At 18 (and sometimes a bit later), the policy reverses from the childhood loving share share share, into the competitive capitalist fight fight fight policy of being sharktanked into "out there" (time for them too to be bombarded with hide-gouging bills and pricetags invented by capitalism). Such "join or die" (get a servitudal job or else) is forced religion (a felony) into the competer's church (free marketeers) and thus eliminates membership in the cooperator's church (Christian communes). Such forcing (ALL forcing) is felony extortion. Speaking of felony extortion, seeing any Chicago mob-like "pay up or lose your wellbeing" within the Free Mason/Illuminati herd-control con/sham called capitalism? Sure we are... its everywhere. Between the servitude infestation and the felony extortion, one can easily see the con, and should avoid condoning, promoting, and joining such anti-Christian activity. One should avoid using economies, but especially avoid pyramiding (bossing, rationing, ordering, inequality ops). Capitalism is just a bunch of idiot children doing a toybox tug-o-war over greenpapers and ownership entitles. Pretty sick. Enjoyment junkies. Pyramid schemes like capitalism, are EXACTLY like the childhood pyramids we failed-at building in the farmyards when we were kids. While the upper 1/3 is "heads in the clouds", the folks on the bottom ALWAYS GET HURT from the weight of the world's knees in their backs. We all know better then to use pyramids for our survival system. The U.S. military uses a monetary discriminationless (socialism) survival/supply system. Why can't the civilians do the same?? Our public libraries are beutiful socialisms... and they might be the BEST RUNNING SYSTEM EVER! What actually needs to happen... is the outlawing and abolishing of economies worldwide, and then the formation of "Team World" where we're all on the same team... and nobody is stacked into inequality hierarchies. Economies (including money, ownership, trade, us/them wars, borders, fences, ANY isolating) don't work, and aren't needed. Such things just cause inequality and rat-racing. The internet doesn't recognize borders... it just talks and visits right across them with the flick of a mousebutton. So why should we do physical borders and ownerships? US = THEM, and THEM = US, and thus there's no need for borders or even yard fences. Robbery evaporates when all things belong to mankind and Earth beings. Abolish/outlaw economies... its the only way. Larry "Wingnut" Wendlandt MaStars - Mothers Against Stuff That Ain't Right (anti-capitalism-ists) Bessemer MI USA


Angela October 10, 2008 5:13 am (Pacific time)

Pffft. Redefining success doesn't redefine failure. Capitalism didn't fail, nor did the free market. It was government. The free market is the only system that has a natural self correcting mechanism. Greenspan and Bernanke continually sabotaged the market with the gross manipulation of interest rates. Everything else stems directly from that. It enabled the greedy, it misrepresented the economy, and it drove the banks. Keeping interest rates artificially low is a price control, and price controls create shortages. We're out of credit for that very simple reason. America is broken. We spend more than we earn, and we consume more than we make. It can't go on forever.


Glen October 9, 2008 9:08 pm (Pacific time)

For America to continue we MUST learn how to measure success in other ways than financial profit.

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