Business led by a genius or a jerk?

It used to be said of certain businessmen that they would think that ‘ethics’ is a county north of London. What is now apparent and worse is that they don’t go there either.

It is becoming increasingly obvious that investors, shareholders and employees do not have enough independent protection from rogue, renegade, evil or plain mad business leaders.

With RBS, Madoff, Toyota, Lehman as just four examples, how do you know whether the leader is a visionary or a fruit-cake?

RBS under Fred the Shred certainly had a vision of what it wanted to do. Trouble is that a lot of people inside and outside of the bank felt that the risk-taking in external deals, the cost-cutting internally, the changes forced through in retail banking and the high-rolling on the investment banking side were all wrong. Individuals warned against it.

Madoff was eventually exposed as a complete crook and yet certain individuals had seen through his sham of a business.

Toyota drove cost-cutting relentlessly but at the cost of quality and ingnored internal warnings of the dangers it courted.

Lehman, led by the ruthless Dick Fuld, as is evident in the report just published by Anton Valukas, was warned that their accounting methods carried ‘reputational risk’ and a whistleblower (the brave Matthew Lee) warned that various transactions (designed to conceal the parlous state of the company’s balance sheet) could be unethical.

What are we to do about this? How can individuals protect their own position when snitching on the boss if they disagree fundamentally with the direction that is being taken and the leadership that is being shown? How can shareholders and employees alike be protected from the ruin of a company by the unchecked activity of senior executives?

Corporate governance and the relationship between members of a board and with outside advisers (accountants and lawyers) is often too cosy and self-protective. Too much friendship, mutual self-interest and mistaken loyalty can cloud judgement.

Time for a shake-up of corporate governance with changes to company law and employment law so that whistleblowers can blow their whistles and be heard by investors, shareholders and employers who can then decide if the business is in the hands of a genius or a jerk.

Published on Mar 21, 2010 by Neil Thomas