Tag: business

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Compliance in current and historical events

The bankruptcy of Lehman Brothers

For over 150 years, Lehman Brothers Holdings Inc. was one of the largest financial services organizations in the world. In the United States it had far-reaching business operations in investment banking, securities sales and trading, research and analysis, asset and wealth management, and private equity investments.

Despite this long history, in the early 2000s Lehman Brothers was deeply impaired by the firm’s involvement in the subprime mortgage market, the impending bursting bubble of which precipitated the 2008 global financial crisis. Losing clients, market value, and rating status rapidly, Lehman Brothers filed for bankruptcy on September 16, 2008. This date is often seen as the impetus of the subsequent financial crisis, when widespread, sustained market collapse commenced.

The Lehman Brothers businesses were almost immediately taken over by Barclays in North America and Nomura Holdings elsewhere in the world. However, the impact of the bankruptcy was seismic. It had a strong effect both in concrete terms of losses in the financial markets and stress to the economy as well as a symbolic effect in representing the “too big to fail” categorization that troubled the global financial system and the many large firms within in that suffered great losses during the ensuing crisis.

  • A Colossal Failure of Common Sense – Also a best-selling book by Lawrence G. McDonald with Patrick Robinson, this lecture goes into great detail of the events leading up to, during, and following the Lehman Brothers bankruptcy during the years 2007-2010. The study goes even further back as well, to unpack the changes in financial regulation and banking industry laws from the 1990s which allowed the business conditions under which products like the subprime mortages and resulting securities were created and sold.
  • The Last Days of Lehman Brothers: Moral Hazard – This film dramatizes the events of the weekend leading up to, and in hopes of preventing, the eventual bankruptcy of Lehman Brothers. The subtitle “moral hazard” refers to the situation in which precarious risk calculations are made by individuals who do not face the liability and/or loss if the decision was the wrong one.   This sort of risk-taking was prevalent during the lead-up to the financial crisis and in the subprime mortgage securitization market. The bankruptcy of Lehman Brothers served as both a reminder that the risk could come home to roost after all, as well as a cautionary tale for financial firms and governments in the future to continue to try to mitigate this exposure.
  • Wall Street Crash of 2008 – This is the real-time video from CNBC on the evening of September 14, 2008 which reports the unfolding story that Lehman Brothers was going to collapse and file for Chapter 11 bankruptcy protection the next day (followed by a bankruptcy filing the day after that).
  • Did Lehman Brothers Cause the Financial Crisis & Stock Market Crash on Wall Street? – This interview between Maria Bartiromo and Yves Smith analyses the effects of the Lehman Brothers bankruptcy to ask whether the firm’s collapse contributed to the causes of the global financial crisis or simply signalled the beginning of a trend.
  • Five Years After Lehman Brothers – This discussion on The Agenda with Steve Paikin from 2013 looks into what has changed, or not, in the global economy and financial services sector since Lehman Brothers went bankrupt in 2008 and the markets and industry began their prolonged collapse.

 

The story of the rapid decline and fall of Lehman Brothers, and the collapse of the global economy and markets that followed, is one that will remain captivating to students of the 2008 financial crisis for years to come. Furthermore, the events of that weekend in September 2008, and their causes and effects, serve as an interesting and important measure against which compliance professionals and decision-makers in the business should judge their assumptions of risk and expectations for liability.

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Compliance in popular culture

Selected lectures on honesty and trust

Honesty in life is the foundation for integrity in business. People with a strong personal sense of correctness will be loath to discard their internal moral register easily just because they are in the workplace. Those who respect the truth, however challenging standing by that may become, and wish to be rewarded for it with being seen as trustworthy, are responsible stewards for organizational and individual values. The impact of a corporate culture that venerates honesty and trust is far-reaching into decision-making, business strategy, sustainability, and co-working.

  • The Growing Inequality of Trust (Richard Edelman) – One of the great challenges to establishing and maintaining trust in society today is the “trust disparity” – the difference between the portion of the public that is credibly informed and the population in general. This is a growing and far-reaching challenge to giving and getting trust, when people cannot agree on a view of the facts or are so predisposed toward mistrust. The contextual motivation for good corporate citizens to model integrity and impact societal change for the good is very strong, especially as trust is on the decline. CEOs and other business leaders should answer this call and leverage their honesty and unwavering commitment to tell the truth and disclaim misleading or false information.

 

  • What’s trust got to do with it? (David Horsager) – Lacking credibility will cost you. Trusted leaders and organizations are more successful, agile, and prepared for long-term survival. Establishing trust be the best motivation and the most effective marketing. The positive impact on business and life of trust should be underestimated. Trusting someone is a choice with benefits and consequences, and supporting trustworthy people to succeed can make a real change in our communities and organizations.

 

  • The behaviour of trust in the workplace (Jacqueline Oliveira) – Intercultural communication is one of the great challenges of the modern workplace. Global teams and international leaders have to reach across the norms of their home culture to find a way to relate to each other that can be understood by everyone but still meaningful and productive. Trust is a universal value which can create that connection for everyone to build upon.

 

  • Whom Can We Trust? (Richard Edelman, David Leonhardt, Tom Wilson) – Public perceptions of trust are on a sustained decline all over the world. What can individuals and their organizations do about it? Are we just doomed to a faithless future? If we can’t trust any of our institutions, how can we trust the people who work at them or, eventually, each other? The potential for moral decline in our private lives is precipitated by the deteriorating credibility of the organizations that dominate our news and the public attention. Personal leadership that is values-based and emphasizes the truth and trustworthiness over all other character traits is one possible path forward. If society starts to reward and appreciate people for their honesty and their eagerness to earn trust, then the public measures of success and expectations on businesses will follow in kind.

 

  • The Value of Trust (Dan Ariely) – How does trust impact decision-making and individuals’ perceptions of their own interests? The value is likely significant, especially insofar as many decisions are made and promises are kept or broken for practical, emotional, or even irrational reasons. Trust in themselves as well as in others does more to determine how people actually behave than their intentions.

 

Check back next week for the follow-up to this collection: selected lectures on dishonesty and mistrust.

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Compliance in popular culture

Selected TED/TEDx talks for compliance and ethics insights

TED and TEDx conferences and events have become important and popular venues for speakers from all walks of life.  This includes academics and business leaders but also ordinary people who have had inspiring or extraordinary experiences, to share their insights and stories. Given how ever-present ethics and morality are in business and life, many talks touch on useful compliance topics.

  • Creating Ethical Cultures in Business (Brooke Deterline) – We must question why we don’t speak up on behalf of other people or ideals, and how it makes us feel after we encounter a situation where we want to say something but don’t. Challenging discomfort and fear can help us advocate for each other and our principles and create corporate cultures where standing up courageously and speaking our values is seen as safe and helpful. Courage is an inspiring and powerful antidote to corruption and unethical behavior.

  • Building Business on Character Ethic (Kevin Byrne) – Commercial profitability and competitive advantage dominate most metrics of business success, but how can these be achieved and sustained without integrity? Taking care to do the right thing in all areas of business – from dealing with customers to retaining employees and everywhere in between – and avoid reputational risk are powerful drivers in building a business designed to last.

  • Why Credibility is the Foundation of Leadership (Barry Posner) – Speaking to the perennial compliance topic of tone at the top, leaders must be people worth believing and following. We evaluate whether those in senior management or supervisory positions are competent and credible. Expertise, intelligence, passion, and innovative thinking – all of these things are also necessary for leadership to succeed, but in order for anyone to believe in them, integrity must come first.

  • We Need a “Moral Operating System” (Damon Horowitz) – A strong, developed moral framework is necessary for knowing what to do with all the information and power we possess and must make decisions about how to use on a regular basis in both business and life in general. Ethical decision-making is challenging and nuanced and can even be awkward. Thinking, discussing, debating, and defining beliefs are all integral to understand our human ability to distinguish right from wrong and make a principled choice on how to act.

  • Our Buggy Moral Code (Dan Ariely) – Confronting the theory that purely bad people are to blame for the majority of bad things that happen in society, the work of behavioral economists such as Dan Ariely suggests that human behavior is far more complex than static good or bad values. Rather, wrongdoing in decision-making is influenced greatly by intuition and context. Situational awareness and a strong affinity for personal morality are therefore important mitigating factors to unethical behavior.

This is merely a brief selection of TED/TEDx talks touching upon personal empowerment, entrepreneurship, leadership, decision-making, and behavioral economics – all topics which are linked powerfully to compliance and organizational ethics.