Leadership in Financial Reform - or Not

The global recession was caused by financial hubris and a nearly maniacal expansion of credit. Risk considerations were ignored and subdued until the risk exploded into all our faces.

Now, after having cleaned up the first mess, financial regulators try to appease us with timid reforms. One example is the white paper of the British governement: Darling rules out radical changes in City white paper. The US government is embarrassed by the humongous bonuses of the bank manages, while the economy and the unemployed suffer, here and here

Why kill the goose, that lays the golden eggs? But, were the eggs so golden and then for whom? And, who has to clean out the pen? In the end, financial managers found their personal profit perpetuum mobile: Leverage your equity until the hilt, if it explodes, turn the risks over to the governments and taxpayers. If it works out fine, pocket the cash and buy a big yacht.

These managers are all right and good people and fathers & mothers for the most part (besides outright fraudsters). It must be understood that their behaviour is not as much a question of values, but of reasons. Who on earth would give up risk-less money? The problem is not the individual, it is the regulations and incentives.

Why can´t we make the high-risk bankers eat their own losses? The answer is that it would destroy our economy. That is right. But why do we let our banks and financial institutions put us in such a situation? Because the central banking system provides the banks a shelter from free market forces. This is the crux of the problem.

The central bank is the "lender of last ressort" for banks and their money (credit). This creates a government sponsored monopoly. And as such, market forces break down and the situation we experience now is the sad result.

What would leadership mean in this situation? Financial regulators need to wake up to their responsibility towards not only the financial players, but to the society overall and institute a money system that does away with these artificial monopolies given to banks.

For the theoretical background on these see Rothbard. Practically, however, it is a sad state of affairs to know that our government budgets will wreck and bankrupt over the next years, while on the other hand completely reasonable changes are ignored.

It seems to me, here our political leadership is in the situation of the leading class of the U.S.S.R in mid-80´s. They know they got a problem, but reform is too hard. They would have to change the basis of their power structure, which they are unwilling to do.

As a result, our current leaders are leading us down a path that leads to more waste through government sponsered "deficit spending," which only means throwing good money (that we do not have) after bad money. Bailouts, subsidies and other nonsense destroys value on a scale not seen after the fall of Soviet-style communism.

It is ironic - if not foolish as well - to make new debts to cure the crash, which was caused by too much debt. In the end, the budget deficits will explode and suppress further growth for years to come (think: Japan).

Also, to call for less markets and more government, or even to ask leftist philosophers and other theoreticians to propose the establishment of a " better world" makes me feel scared. We do have fine market systems that made us successful, prosperous and even happy over the last 50 or 100 years. (Better than any other known to mankind.)

Now it is up to the enlightened leadership to preserve the working elements (e.g. markets) for all economic sectors: it is time now to let market rules work for the money and financial system.

Just 18% Happy With Own Leadership Performance

This result that just 18% of leaders are content with their own leadership performance was the outcome of a recent study by Dr. Seliger (PDF German). In addition, the conclusion stated two major shortcomings:

1. Leadership instruments are choosen without facts, on the basis of "gut feelings"
2. Lots of communication does take place, but it lacks plain-talking language

The consequences of this lack of performant leadership on the organizations are highly detrimental. Typical outcomes of bad leadership are: trends overlooked, growth targets missed, performance deteriorating, costs too high, employees demotivated, customers and owners disappointed, insolvency a clear danger.

The study uncovered some of the reasons, which conform with my experience. There are serious misconceptions that undermine performant leadership:

• Leadership is reduced to "charismatic" leaders, neglecting the process of leading
  
• Separation of thinking and doing, whereby the leader commands people to do (not to think, so they stop thinking)
  
• Disregard for genuine leadership work in favor of operational work (i.e. sales manager is his best salesperson)
  
• "Hero" conception of leadership versus the reality of daily housewife-type leadership chores to achieve consistent and sustainable results

These wrong myths of leadership prevent a more profound approach. What does such an approach need to contain? Here, my experience suggests not to fall into the trap to extend a "catalogue" of tasks or traits. Quite the contrary, less is more: principles come before attributes.

Sure, leaders need to follow standard work with high discipline, the core of leadership does not consist of tasks. The heart of leadership are the results delivered, which in turn means accountability for these results.

This may sound simple, but it requires the courage to define a clear vision on basis of personal responsibility. Especially in times of crisis, leaders are called upon to confront the new situation, investigate the reality and face up to uncomfortable truths. Not a job for the faint of heart.

Despite being in the center of social networks, leadership contains a lonesome responsibility and no consultant or clever method can substitute for standing up to it. Too often have we been fooled by the drappings of leaders, while the actual results then turned out to be dreadful.

Instead of impressing their stakeholders with results, these so-called leaders went through the motions of leadership only - in fact duping the public (i.e. just to mention the most famous: Enron, WorldCom, Tyco, Parmalat, Madoff, Bawag, etc.). More substance, measured in results, is needed for times like ours.

For our leadership practice we should bear in mind that your next most suitable leader may well come from a different class, a different country or a different gender than yours. But, he/she will be the one that delivers results. Take´m.

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