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


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Here are the slides from the presentation that Professor Nada Kakabadse gave at the European Academy of Management (EURAM)'s 10th Conference on ‘Back to the Future’, 19-22 May 2010 at Vergata University, Rome. The title of the session was Track 29: Re-Thinking the Role of the Firm in a Post-Crisis World.

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  • Friday 23 July 2010 Group name goes here
  • Auditing Moral Hazards for Post-Global Financial Crisis (GFC) Leadership

    1. 1. Auditing Moral Hazards for Post-Global Financial Crisis (GFC) Leadership Nada K. Kakabadse Professor in Management and Business Research Northampton Business School [email_address] 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
    2. 2. Structure <ul><ul><li>Context in which moral hazards occur in the post-GFC economy </li></ul></ul><ul><ul><li>Crisis and Economic Opportunities </li></ul></ul><ul><ul><li>Moral Hazards </li></ul></ul><ul><ul><li>The most pressing “moral hazards” which need to be addressed </li></ul></ul><ul><ul><li>Ways forward </li></ul></ul>Page © N.K. Kakabadse et al
    3. 3. Context for Moral Hazards in Post-GEC Economy <ul><ul><li>Fallout from short-term currency speculation has largely contributed to </li></ul></ul><ul><ul><ul><li>sharp collapses in the values of some national currencies </li></ul></ul></ul><ul><ul><ul><li>productive and financial collapse </li></ul></ul></ul><ul><ul><ul><li>crisis in values and life-style </li></ul></ul></ul><ul><ul><li>Was crisis a large-scale failure of </li></ul></ul><ul><ul><ul><li>regulation and government policy? </li></ul></ul></ul><ul><ul><ul><li>fuelled by greed of consumers as well as bankers and politicians, or </li></ul></ul></ul><ul><ul><ul><li>fundamental flaw in the neo-liberal model of capitalism ( unlimited growth/consumption) ? </li></ul></ul></ul><ul><ul><li>Origins </li></ul></ul><ul><ul><ul><li>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’) </li></ul></ul></ul><ul><ul><ul><li>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. </li></ul></ul></ul><ul><ul><ul><li>Separation of labour from unit of production - Rent seeking and money markets are deemed as being new “real trade” </li></ul></ul></ul>Page © N.K. Kakabadse et al
    4. 4. Crises and Economic Opportunism <ul><ul><li>Reconciling economics, politics and public duty in crisis management is an on-going, “wicked” issue </li></ul></ul><ul><ul><li>Non-routine situations involve not only discretionary decision-making but resource re-distribution. </li></ul></ul><ul><ul><li>“ Uncertainty”; “ambiguity”; and “risk” are inherent characteristics of &quot;tough&quot; decisions in crises. </li></ul></ul><ul><ul><li>“ Natural” and “technological” crisis events may involve professionalism and ethical aspirations. </li></ul></ul><ul><li>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). </li></ul>Page © N.K. Kakabadse et al
    5. 5. Moral Hazard <ul><ul><li>Involves the lack of any incentive to guard against a risk when one is protected against such risk </li></ul></ul><ul><ul><li>Insurance actually increases the occurrence of adverse events through its incentives to people who have insurance – </li></ul></ul><ul><ul><ul><li>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. </li></ul></ul></ul><ul><ul><li>Can take a number of different outward appearances, </li></ul></ul><ul><li>Are difficult to quantify empirically </li></ul>Page © N.K. Kakabadse et al
    6. 6. Most pressing “moral hazards” which need to be addressed <ul><ul><li>Moral Hazard 1: Setting the Precedent – “Too Big to Fail and Bail outs </li></ul></ul><ul><ul><li>Moral Hazard 2: External Gatekeepers - Auditors, Rating Agencies, Regulators and Government Agencies </li></ul></ul><ul><ul><li>Moral Hazard 3: Failures in Corporate Governance </li></ul></ul><ul><ul><li>Moral Hazard 4: Leadership, Hubris and Group Think </li></ul></ul><ul><ul><li>Moral Hazard 5: Invisibility and the Commercial-in-Confidence Sanctuary –The Lack of Transparency </li></ul></ul><ul><ul><li>Moral Hazard 6: Sanitized Language and Collusion in Business and Politics </li></ul></ul>Page © N.K. Kakabadse et al
    7. 7. Way forward Page © N.K. Kakabadse <ul><li>Crisis offers an opportunity for discernment, in which to shape a new vision for the future. </li></ul><ul><li>Opportunity for transition to: </li></ul><ul><ul><li>New model of financing – socialised capital </li></ul></ul><ul><ul><li>Anthropological model of a firm: </li></ul></ul><ul><ul><ul><li>Individual is first capital </li></ul></ul></ul><ul><ul><ul><li>Alignment of values of individuals and the corporate values </li></ul></ul></ul><ul><ul><ul><li>Crucial role of business - development of people </li></ul></ul></ul><ul><ul><li>Humanistic Management </li></ul></ul><ul><ul><li>Transcendental leadership </li></ul></ul>