I was listening the other day to Jeffrey Sonnenfeld of the Yale School of Management discuss leadership lessons from the financial meltdown with Wall Street Journal. Jeff likened the finger-pointing towards systemic failure to a man tripping while walking down the street and blaming the city for not paving the path properly. As the dust settles, and the world turns its attention to the effectiveness of the bailout package instead, it might be worthwhile to move the spotlight from the regulators and go back to dig deeper and discover what really are the lessons here? They are powerful in their simplicity.
- Courage to walk away: The very first learning that emerged from what is now being termed as a financial Armageddon was the need for courage: The courage to carve your own path and walk away from the herd. We in India were born with this lesson as we gained independence with ‘non-violence’ in an era of World Wars. In the US financial world, we saw Warren Buffet display the courage to walk away. Back in 2002, when companies began toying with exotic derivative instruments, Warren Buffet termed derivatives ‘financial weapons of mass destruction.’ Few listened to him then but today he stands out as the voice of sanity.
- Save it for a rainy day: The second lesson is the forgotten power of savings. The ‘savings mentality’ has always been a hallmark of the Asian culture. India, for one, has always had a high rate of savings – a phenomenon that is getting eroded with a new culture of consumerism sweeping across our cities today. Interestingly, America, which is home to 5% of the world’s population, accounted for 30% of global production and 37% of global consumption during boom times! On an individual level in the recent crisis, the ninja loans reflect this mentality, but collectively it made the entire country vulnerable to risk. And there were those who saw the warning signals.In 2005, when the times were good, economists Paul Volcker and Clyde Prestowitz, pointed out that America was vulnerable due to all the leveraging, and predicted that a financial crisis could soon hit its shores. This has come true and – be it at a macro level or a micro level – it highlights a forgotten lesson on the power of savings and that that we should leverage only to the extent we can afford to service our debt. Its time for a “back to basics” approach, old fashioned as it may seen. Save and plough back in good times, and not fritter liquid assets away.
- Caution, compliance and governance: The role of the American regulatory bodies can be debated till kingdom come. If investors such as George Soros and Warren Buffet and economists such as Paul Volcker saw it coming, why couldn’t the American financial agencies? The fact is that caution, compliance and governance are self checks that business needs to bring back. What was so extraordinarily complex about the bubble that a few investors could see and regulators could not? But the danger here is to get over-dependent on regulatory direction and therefore over-regulation. Lesson here: We have no choice but to think on our feet, keep our radar scanning the environment constantly, and not follow the herd blindly despite what the regulators have allowed.
- Look ahead – A lot has been written about the fall and a lot is yet to be written. However, it is time we stop reading and start looking ahead. The world will emerge from this crisis the same way it has from many such crisis before – stronger. We need to look ahead as organizations and convert this crisis as an opportunity to transform the today for a better future. The people who look ahead will come out of this as winners, and I do hope more and more people start doing just that.
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Bang on target Vineet. Awesome article. Surely these are testing times when one needs to analyze the situation and get lessons from it and these are the time when lives of other people inspires us to wade through the turmoils and emerge as surviors.
Well, I totally agree with you and am equally sure that India Inc. would take this opportunity to march forward and anounce to the world that here ‘India is coming!!!’
Nice article
Dear mr. Vineet,
I appreciate your optimism. Since wall street crisis erupted I ‘ve been giving my comments regularly at NYtimes website.
In my analysis the economic crisis is of USA is less understood in its micro perspectives of macro system.
First of all "the money aspect" of American economy is like sands in the sea or stars in the sky.It is not real in explicit or implicit terms.It’s like "Club token" with no condition of returning the token.
Second the tax collection is defining American GDP though former is created as some % of GDP. No other country has that advantage.All other countries the tax collection is depended on GDP. It is like 2.5 tax units is 10% of GDP, so GDP should be 100. You can achieve the same GDP by increasing or decreasing of of tax collection or tax %.
Thirdly some % of GDP is created through the transactions of Wall street.nobody knows it is 5% or 50%. Whatever it may be the world is not complaining because it is too complex to undo even if one wants to.On the other hand it is bleeding them as well because it is built on "club token".
The present situation is like whoever becomes president of USA the world will provide all the resources for the use of USA,because they have no other choice. When senator Obama says he will promote entrepreneurism in America he is actually trying to build the real economy for every one’s benefit. Other economy will follow it. In any case America is not going to loose in short term or long term because it is "Club token" that is used as money with the consent of the world.
Francis K.J.
Second Thought on Slowdown…… Slowdown phase is an opportunity to improve your ranking with respect to peers. There is always a psycological barrier in the team that nothing great can be done during slowdown and let us sustain the system..This is not true in relative terms…Corporate can take benefit from this compare to their competitions..and work hard for the near future. If we are assuming that the slowdon will take 12-18 months to becom normal..we can prepare our company for the great period which will come after 12-18 months. These efforts should be in the right direction visualizing the possible situation after 12-18 months. This is where leaders vision play very crucial role……
Hi Vineet,
Good one. One need to have need based living irrespective of his capacity to spend. It is important to take every hour and day as it comes during recession, the way we live when similar exigencies occur on social front. What it needs is a scrappy approach than to loitre or think and spend big. The approach what we apply in personal life gets very valid to corporate or professnal life as well.
Such approach in corporate worls calls for collective wisdom than expecting rules, enforcements in to value add. Such approach is more important for policy decision makers and politicians to get into scrappy approach.
Jagadish Badi