Thursday, January 14, 2010

Bankers make few changes in the way they do business, won’t apologize for their role in causing the crisis and resist regulatory reform. This behavio

In Wednesday’s New York Times, there was a front-page article entitled, “For Bankers, Saying ‘Sorry’ Has Its Perils”. The article was about how difficult it is for America’s senior executives, particularly chief executives, to accept personal responsibility for bad decision making and to apologize for those decisions. In the rare instances that apologies are given, according to the article, they are, more often than not, tepid and sound insincere. The article mentioned that in this week’s hearing before the Financial Crisis Inquiry Commission, few of the bankers testifying about the causes of the collapse, and how to avoid one in the future, would accept responsibility and apologize for their role in the crisis. In fact, it seems that some of the bankers blamed the mortgage crisis on “’regulatory lapses’ and errors by the ratings agencies”.

Sincere apology paves the way for transformative organizational change. Of course, the bankers want to avoid apologizing and acknowledging poor decision making in order to avoid lawsuits. And, it is true that acknowledging poor governance, even apologizing for it, will not prevent recurring problems. There are unfortunate examples of corporate spokespersons who have made public statements concerning governance failures in order to save a company’s reputation, while at the same time failing to take action to correct the problem. For example, about a decade ago, Jacques Nasser, the then president of Ford Motor Company, and the chairman of Firestone, blamed each other for tire-related auto accidents that caused almost one hundred deaths, eventually offering insincere apologies. Neither leader made early substantial changes.

Compare the Ford/Firestone finger-pointing to the 1982 response of Johnson & Johnson to the crisis it faced when seven people were killed after taking Tylenol with which someone had tampered. The company offered a sincere apology and accepted full responsibility even though the act was caused by the criminal conduct of a person who did not act on the company’s behalf. The apology and the acceptance of responsibility enabled the company to make an honest assessment of its controls and procedures. As important as the apology itself, the crucial organizational changes the company made helped to reestablish the firm as a company deserving public and consumer trust.

The smart thing for the bankers to do would be to apologize, accept responsibility for their role in causing the financial crisis, and avoid pointing the finger of blame at others. None of the bankers who appeared before the Commission did this. Not even their tone was apologetic. So it seems that the bankers are really not so smart. They took excessive risks when they entered into the subprime mortgage and securitization markets. Perhaps this can be forgiven. At the very least, when the decision to enter the subprime market is challenged, courts will defer to the bankers’ decisions under the business judgment rule.

But, in the aftermath of the crisis they helped to create, the bankers refuse to apologize and are more than willing to blame others for the financial collapse. And, not only have they failed to seriously consider how they should change the way they do business, they pay lip service to regulatory reform while engaging lobbyists to resist real efforts. For the bankers, it is business as usual. And this includes huge bonuses. This behavior should not be rewarded. This behavior supports the argument that the bonuses should be dramatically reduced or even eliminated. These bankers are not making smart decisions. Wildly lucrative bonus payments should be made only to smart executives who make smart decisions.


  1. It seems that an apology could possibly promote the business instead of hurt the business. While an apology may subject the bankers to possible liability in the future, a sincere apology might ease the minds of many angry consumers and allow the banking business to continue to grow. Many consumers just want and apology and are purposely withholding their business from certain bankers because of their misconduct. However, a sincere apology is the first step in regaining the trust of consumers across the country.

  2. Though an sincere apology would be a great starting point for bankers, I doubt an apology would cause consumers to forgive bankers for the mess they've made. It would be wonderful for the bankers to step up and solve the problem by looking inward rather than outward much like Johnson & Johnson did. Unfortunately, this probably won't happen unless they are given consequences like a big bonus cut. Sounds like an apology may be in the best interest of the buiness, but until the executives see a difference in their own pocket we will continue to see finger pointing.

  3. I also agree that Banks should apoligize for the mortgage crisis. They pushed through bad loans and individuals were taken advantage of. However, I would add that Banks are not the only ones who should have learned a lesson from the mortgage crisis. Undoubtedly, there were many individuals who entered into impossible loans that they did not fully understand, and Banks knew they could not afford. But everyone was not an uneducate borrower with a sub-prime loan. There were also individuals who understood their loan and understood that they were buying a house they could barely afford, but just had to have it. Many of us are in denial about the type of house we can really afford, and stretch our check, and credit cards as far as they can go in order to chase the "American dream." We must educate oursevles, and arrive at a point where we are ok with having $5,000 in the bank but have a house we can afford, than having 500 in the bank and barely making the minimum payment on all of our bills. What good does it do us to have a big house but can't afford to get sick because we would loose it. When we could have a house we can afford with adequate savings to allow us to maintain our lifestyle in the event we get sick or laid off.