Auditing Moral Hazards for Post-Global Financial Crisis (GFC) Leadership

Auditing Moral Hazards for Post-Global Financial Crisis (GFC) Leadership Nada K. Kakabadse Professor in Management and Business Research Northampton Business School [email_address] http://www.kakabadse.com Prof. Andrew P. Kakabadse and Prof. Alexander Kouzmin EURAM 2010 10th Conference on ‘Back to the Future’ 19-22 May 2010 Vergata University, Rome Track 29: Re-Thinking the Role of the Firm in a Post-Crisis World

Structure
Context in which moral hazards occur in the post-GFC economy
Crisis and Economic Opportunities
Moral Hazards
The most pressing “moral hazards” which need to be addressed
Ways forward
Page © N.K. Kakabadse et al

Context for Moral Hazards in Post-GEC Economy
Fallout from short-term currency speculation has largely contributed to
sharp collapses in the values of some national currencies
productive and financial collapse
crisis in values and life-style
Was crisis a large-scale failure of
regulation and government policy?
fuelled by greed of consumers as well as bankers and politicians, or
fundamental flaw in the neo-liberal model of capitalism ( unlimited growth/consumption) ?
Origins
Separation of markets from the state - markets are de-linked from competition (mergers and takeovers, not competition or “knowledge”; Mantra that ‘markets could, and should, do much better than the state’)
Separation of market from morality - illegitimate, unacceptable and illegal activities are profitable (anti-values as greed, self-indulgence, short-term preference or lack of judgment). Economic issues have also moral implications, encompassing many aspects.
Separation of labour from unit of production - Rent seeking and money markets are deemed as being new “real trade”

Crises and Economic Opportunism
Reconciling economics, politics and public duty in crisis management is an on-going, “wicked” issue
Non-routine situations involve not only discretionary decision-making but resource re-distribution.
“ Uncertainty”; “ambiguity”; and “risk” are inherent characteristics of "tough" decisions in crises.
“ Natural” and “technological” crisis events may involve professionalism and ethical aspirations.
Crisis, as opportunity - Katrina’s New Orleans, a new political/federalist manifest, the out-sourcing state – “[New Orleans] will be re-built in a completely different way […] demographically, geographically, politically” (Scahill, 2007: 331).

Moral Hazard
Involves the lack of any incentive to guard against a risk when one is protected against such risk
Insurance actually increases the occurrence of adverse events through its incentives to people who have insurance –
government bailing out of banks and other industries during GFC can be seen as actions that lack any incentive to guard against a risk in the future as these institutions are protected against such risk.
Can take a number of different outward appearances,
Are difficult to quantify empirically

Most pressing “moral hazards” which need to be addressed
Moral Hazard 1: Setting the Precedent – “Too Big to Fail and Bail outs
Moral Hazard 2: External Gatekeepers - Auditors, Rating Agencies, Regulators and Government Agencies
Moral Hazard 3: Failures in Corporate Governance
Moral Hazard 4: Leadership, Hubris and Group Think
Moral Hazard 5: Invisibility and the Commercial-in-Confidence Sanctuary –The Lack of Transparency
Moral Hazard 6: Sanitized Language and Collusion in Business and Politics

Way forward Page © N.K. Kakabadse
Crisis offers an opportunity for discernment, in which to shape a new vision for the future.
Opportunity for transition to:
New model of financing – socialised capital
Anthropological model of a firm:
Individual is first capital
Alignment of values of individuals and the corporate values
Crucial role of business - development of people
Humanistic Management
Transcendental leadership

Auditing Moral Hazards for Post-Global Financial Crisis (GFC) Leadership

by kakabadse on Jul 23, 2010

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Auditing Moral Hazards for Post-Global Financial Crisis (GFC) Leadership — Presentation Transcript

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