The Global Financial Fiasco; Lessons taught but maybe not learned…

The current global financial fiasco (a deliberate departure from the rather misleading, yet more generally applied – global financial crisis) is the product of an evolution of our financial systems from re-enforcing the fundamentals at the core of a real economy to purporting those of a virtual one.

A real economy is built out of a reasonable balance between what is saved and in turn what is invested from these savings to keep the wheels of consumption and productivity well greased and turning. At the center of these transactions are banks.

Banks are the primary financial institution of any modern economy. Banks were once the epitome of conservatism and financial integrity. They were vested with the single and most critical role of safekeeping the funds of the productive sector as a result.

These savings could then be transformed into funds for borrowing by the same productive sector. And through this basic cycle, a real economy could grow almost indefinitely.

The burgeoning of investment banking in the 1980s married by a growing appetite for speculative money market tendencies, propagated further by the ‘technolution’ that gave birth to silicon valleys from California to Bangladesh and the virtual billionaire (rags to billions and back again almost overnight).

This has, in turn, resulted into what can be termed a virtual economy. A virtual economy is built out of borrowings outstripping savings such that borrowing is funded by borrowing itself as opposed to saving per se. It is virtual because the main output is cash generated from shifting positions in money markets and not production of goods and services as is the case for a real economy.

A clique of few, well educated, sharp suited and immensely powerful executives caught wind of this development, studied it, repackaged it and embarked on what could be termed the greatest financial scam to hit this century - a financial homicide of sorts that has left multitudes in irreversible financial turmoil. This clique is guilty as charged without much of a case to argue, but given the short term nature of this game and its compensation structures, most of these executives have made off with their six digit bonuses, lavished in their Hollywood-like lifestyles and are probably sipping cocktails in some exotic island, as the world tries to figure out what to do next.

It is the floor shop operative, the uninformed and less involved middle-manager, the guy next door, the ‘shirtless’ one that is left picking up the can for decisions that were short sited by design and opportunistic from conception and purely intent on serving the selfish interests of those making them.

As the world gets a wake-up call; leaders of nation states, the corporate sector and individuals alike must understand that some of the symptoms evidenced in this global financial fiasco could be at the root of any downfall. What lessons can we derive that may be of value to our continued survival:

Lesson 1 - a few people can get a lot of people into a lot of trouble. It may be lonely at the top, but it’s far too crowded at the bottom for most. We work hard to get into positions of power and then we use this power to stay in power without taking into account the implications of our actions on others. We should never overlook the fact that the decisions we take when in power, in as much as they may keep us there, albeit in the short term, can destroy the lives of families and communities they live in; and the confidence of a people in the whole system.

Lesson 2 – invest in the future, don’t just live by the power of speculation. There is but so much we can do to conceal reality in the long term. Speculation, at best, will give you short term gains even if it at the cost of the longer term picture; if you don’t believe ask any ardent gambler. We must always bear in mind the strategic implications of the tactical decisions we take. In order for us to get the most out of the target P (performance) in the long term, we must strategically employ our secondary P’s (price, promotion, place and product), while continuously investing and improving in the primary P’s (people, policies, processes and planning). At the heart of all these P’s, must always be, the ultimate P - passion.

Lesson 3 – success and failure both are great teachers if we take the time to learn from them. Being taught is knowing how and having learned is knowing why. Not enough is invested in
understanding the root causes of success often leading to pre-mature or false declarations of it and deriving inferences and/ or initiatives to the general detriment of one’s sustainable growth. Equally, failure, if not understood, can lead into brash decisions that do not necessarily address the underlying issues.

Lesson 4 – always base decisions on your mission. In the absence of a shared mission, every event or situation is critical and can result into a misguided decision. It is worth noting that there is justification for every decision we make and as a result we need to be guided by something, which in most cases should be our shared mission. We should use our mission to develop our objectives, strategy and action plan; and almost religiously evaluate every aspect of our performance against this very mission.

Lesson 5 – invest in a human system. After all the accounting, production and stock taking is done; what companies need to remember is that a company is nothing more than a series of conversations and the outpouring of emotions. Manage these conversations and emotions well and 50% of your problems will solve themselves. We are so drawn into what we do, we overlook how and through whom we do it. The family is, arguably, the best business model for any company to emulate, where communication and emotions flow almost seamlessly while trying to achieve a shared mission. When these conversations and emotions don’t flow, we all know what the consequences can be…