Corporate Eye

Life After The Financial Crisis Inquiry

The US’ Financial Crisis Inquiry has concluded with a set of damning conclusions (PDF). These are:

  • it was totally avoidable and caused wholly by people’s catastrophic mistakes
  • failures in regulation and supervision had a devastating effect
  • failures in boardrooms were a key cause
  • excessive borrowing, risk and a lack of transparency were all exacerbating factors
  • the US government’s ill prepared response added to the turmoil
  • there was a systematic breakdown in accountability and ethics
  • mortgage standards were the trigger (but not the cause)
  • the removal of the regulation of over-the-counter derivatives was a significant contributing factor
  • failures in the credit rating agencies drove the crisis forwards.

This is nothing short of a manifesto for regulatory reform along CSR lines.  The question is, will it happen?  After all, with a lack of regulation being the second item on the list, can business trust the government to give it the medicine it needs?

Unfortunately, it also raises huge questions about the ability of businesses to self-regulate and take steps where government doesn’t direct them.  So can we trust corporations to do this now?  That seems almost as unlikely as getting strong CSR based legislation.

Now it may seem unfair to tar all politicians and all businessmen with the same brush, especially when the crisis is focused very firmly on the financial sector and treasuries alone.  The trouble is that in a capitalist based society this is the heart of all other activity.  These are the leaders others follow and attempt to emulate: so even if you’re a follower at least some of the tar from the brush has probably spattered you. Us. Us all.

So here are some key things (in no particular order) I believe should come out of this as lessons learned:

  • it’s not all about money; non-financial reporting now has to be seen as just as important as financial reporting; attempting to squash everything into the pounds and pennies bottom line quite simply doesn’t work
  • regulation should no longer be seen as the lowest common standard; compliance must cease being a box ticking exercise; the legal framework should be seen as a foundation to build upon, not an exercise in pseudo-morality
  • transparency has to become the new watchword of politics and business alike; commercial confidentiality can no longer mean keeping everything secret except mandatory disclosures; instead, everything has to be disclosed unless there is a clear case that it will compromise patents etc; competitiveness must now be about the delivery of quality services and products, not backroom deals
  • no company must ever be too large to fail; a resilient and sustainable economy can only be built around smaller organisations which are independent from one another and yet networked closely together; as soon as a single point of failure presents itself it must be removed forthwith; this may mean a decrease in overall efficiency but if it builds in long term stability and reliable growth what’s the problem?

I’m perfectly aware this is me firing off a few rounds from a 12-bore shotgun and that there’s plenty of contentious issues in what I’m saying.

So please, rather than just taking issue with what I think, let’s talk about what you think.  Where should the business and financial world go from here?

Picture Credit: Phoenix by David Armano under Creative Commons Attribution License.

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A former CTO, Chris has a broad and varied background. He’s been involved with blue chips, consultancies & SMEs across a wide variety of sectors and has worked in Europe, the Middle East and Australia. In 2007 he decided to combine his knowledge of business and IT with his passion for all things sustainable and has been busy writing ever since. However, his greatest ambition remains to brew the perfect cup of coffee.