Libor’s pains


You can’t but feel sympathy towards banks and the people who run or work within them. They just managed to talk themselves out of one dreadful crisis and along comes another one; and this one doesn’t even originate in the country that is, presumably, at the root of most capitalist misdeeds; it originates in the country of ‘stiff upper lips’ and where raised eyebrows are understood to bring even the hardiest miscreant to heel.
Well, what on Earth is going on that leads the stout business magazine ‘The Economist’ to create a new word ‘Banksters’ describing the state of affairs. If you scan the press and public sentiment, it appears to be the case of an industry populated by criminals and run by organized crime syndicates.
Now, besides the fact that you and I know that, on a personal level, bank people are generally honest and upright people, this is as easy an explanation as it is fundamentally floored.  So, what induces honorable and generally upright people to behave in ways that not only makes them the public enemy number one, but also liable to lose their career along with the threat of criminal prosecution, and an ever more likely risk to spend time in prison?
It seems to be the old case of ‘if you don’t learn from history, you are required to repeat it.’
In the late sixties, early seventies it had been conclusively proven by, at the time, stunning experiments, that the culture that surrounds people dictates their behavior. This is backed up by one of the fundamental precepts of System Dynamics: ‘Structure dictates Behavior.’
Do understand us correctly, we do not negate or absolve people from personal accountability. We state a fundamental insight into behavior in systems, and banks, as all organizations, are systems.
An organization’s culture is the outward representation of this system’s structure and boundaries.
Taking this understanding to mind, allow us to outline an explanation as well as a remedy to the current wave of corporate misdeeds.
Corporate misdeeds it is, indeed, as banks are only the current most visible, and maybe, most impact-full representation of this issue – remember Worldcom, Enron, Detroit?
So, what aspect(s) in current corporate cultures leads people to behave in a way that is directly detrimental to the organizations’ customers, people, stakeholders, society and, last not least, ultimately, themselves?
‘Greed’ is commonly blamed, but, again, that would be the easy answer.
Allow us to postulate that the underlying reason for this malaise is found on two levels. One, encouraged by management gurus and organization theory, current organization cultures value performance as achievement of ever more esoteric goals or KPIs.
Two, organizations increasingly measure people performance by target compliance and base financial remuneration on this target compliance or even on exceeding these targets. Supporters of this theory often tell us, that the wrong targets, the wrong KPIs, are the reason for failure and criminal behavior.
Three, organizational cultures are still predominantly based on rules and policies, not on
values, not matter what management and websites led to believe.

Well, hindsight is often the rationalization of a fundamentally floored approach.
And this organization theory is fundamentally floored.

The underlying premise that
a) performance, corporate as well as people, can and should be managed and measured through a set of correlative measures, KPIs.
b) that people not only need to be bribed to perform but that this it is actually a desirable state of business.
c) that a rule based culture breeds compliance as well as the assertion that ‘one bad apple can ruin an excellent enterprise’,
are all spurious and is not supported by evidence.

Let us postulate that performance is not the achievement of goals and KPIs, but the sustained ability to increasingly understand and satisfy performance stakeholders.
Let us furthermore take into consideration the overwhelming empirical evidence obtained over the last three decades that incentive pay neither increases performance nor increases the ability of an organization to attract and retain high performers.
And, last not least, organization culture determines behavior of its people and a
culture truly based on shared vision and shared values is the best defense against
the ‘Lucifer Effect’ and effects high compliance with ethical precepts and commercial
constraints.

We then arrive at a whole new perspective that invites a way out of this highly dangerous and unsatisfying state of affairs.

Remedy?
In short: Let corporate performance be based on an increased desire to understand the values of performance stakeholders (Customers, People, Society) and on the increasing ability to design concepts to be successfully introduced into the same.
Let performance be measured on understanding the commercial, ethical and social responsibilities.
Let financial remuneration be based on people’s actual competencies and management of the whole person, as well as their support of their organizations’ sustainable health.

This sounds straight forward and common sense.
It is relatively straightforward, but it is not common sense because it runs counter current wisdom on so many levels. However this change would go a long way towards a systematic cure of the current malaise and dramatically increase the sustainable performance of not only our financial institutions but our enterprises in general.

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