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Preparing for the next crisis

December 30, 2009 Leave a comment Go to comments

You might ward it off as “premature talk” but I think, the biggest lesson learnt from this financial debacle is to correct our mistakes (which we never did before) and prepare for the next big hit. While a lot has been said on the mistakes done… and obviously the corrective measures, little has been said on the latter lesson.

Fundamental to our preparedness is the need for a change in basic human tendencies… the greed to mistake imagination for reality. This imagination has manifested itself in different ways at every economic turning point. Being from India, I have seen three major economic shifts all through my life… (1) the economic reforms in emerging markets leading to liberalization; (2) the millennium stock market bubble; and (3) the debt markets’ collapse. If you take each of these events and go beyond the facade, the common thread is “financial sector” and “we, the people”.

Bloating small opportunities beyond their realistic scope and capability, following herd mentality to take it to disproportionately unmanageable levels… and ending up with a reality check – thy has been the game!!! At the end of each phase, the whole world (including those who haven’t ever seen a financial statement in their life) went all out to admit that lessons have been learnt. While immediate steps were taken (not to take away that credit) to stem the current crisis, no one spared even a tiny bit of that effort in finding the underlying systemic problem – the distorted compensation structures and useless organizational governance models.

And what have “we, the people” done? Every time finance folks took imaginations to their extremes, our inherent human greed has made us rally in favor of these financial institutions thereby expediting the onset of the crisis. What we fail to realize is that, the intensity of the crisis is only going up with every event. What we termed as the ‘biggest’ crisis of our lifetime will be easily overshadowed by the immediate next crisis… we’ll soon run out of superlatives. And the nightmare will not be a lack of will to react to the crisis but the means to deal with it. This crisis has showed us our limits in terms of resources and capabilities… countries have gone bust; companies are closing down by the 100s every month; people are losing their jobs… even more than a year after the crisis started its volcanic eruptions.

For me, the worst thing to see is that… everyone reads this everyday and yet conveniently forgets to factor this in their work life as they take important decisions for their organizations. In the name of cost cutting, it is often the lower ranked employees who had no say in business decisions who face the flak… when simple number crunching tells me that you get 10 low-level employees for 1 leadership executive. The top people still continue to warm their seats… without acknowledging the mistakes they’ve committed and lo’ what they do is… get in another army of consultants to tell them what went wrong with their business practices.

Concepts of management accountability and corporate governance which had all along kept conflicts of interest, cartelization and goliath power-structures at bay in successful organizations have been thrown out of the window… and they have now come to haunt them albeit their ignorance. Some ghosts are yet to cross-over… BEWARE!!!

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  1. March 21, 2010 at 12:13 pm

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