Yesterday, we noted the appalling fact that the head of AIG’s risk management team still has his job. Today, the WSJ follows up by noting that the WHOLE AIG RISK MANAGEMENT TEAM still has their jobs. The overseer of Citigroup’s risk-management group got an $8 million retention bonus. And so on.
So much for the myth of accountability.
Firing, as Leona Helmsley might have said, is for the little people. In today’s American capitalism, as long as you get high enough in the machine to dole out huge helpings of stock, cash, and favours to friends who could fire you, you can survive just about anything.
No one symbolizes this cancerous trend more than Ken Lewis, the CEO of Bank of America.
Ken Lewis may be an excellent banker. He may be the pillar of his community. He may be a kind, considerate, and fair boss who is admired by his troops. He may, generally, be a real asset to his company.
But Ken Lewis just screwed up. Massively.
Ken Lewis screwed up so massively that he singlehandedly demolished at least half of the value his shareholders’ spent decades accumulating–through a knee-jerk decision to buy the sinking super-tanker known as Merrill Lynch. Six months ago, in one tense weekend, Ken Lewis let himself get duped into thinking that if he didn’t bid now and bid high for an imploding Merrill Lynch, he’d lose the prize he’d had his eyes on for years.
Knowing full well what was on the line, he pulled the trigger. And damn near sent his own firm spiraling with Merrill to the bottom of the sea.
Six months later, even after a major bank stock rally, Bank of America’s stock trades for $7.50, less than half of what it would likely have fetched if Ken Lewis hadn’t made that disaster of a decision.
If you made a mistake half as devastating as the one Ken Lewis made, you’d have packed your bags long ago. You wouldn’t even have subjected your boss to the guilt and awkwardness of having to fire you. You would have accepted responsibility for your decision and resigned.
And yet Ken Lewis still has his job!
We do need to make changes to our economic system. We need regulatory changes, we need attitude changes, and we need rule changes. But most importantly, we need accountability.
We need the folks who make important decisions in our system to take responsibility for those decisions–and when they make firm-destroyingly bad ones, to resign. Not because they will be forced out if they don’t (which, if they don’t resign, they must be), but because it’s the right thing to do.
Until we do that, the whole system will remain infected with the rot that destroyed AIG: An incentive structure that can be summed up as “Heads we win, and tails we win, too.” And that’s no way to run a vibrant economy.