Friday, 2 August 2013

Has the Capitalist system become its own worst enemy?

I was intrigued by the civil trial of Fabrice Tourre the ex–Goldman’s Sachs trader nicknamed ‘Fabulous Fab’ whom has just been found guilty of fraud. He has been described as ‘Feeding Wall Street Greed.’  centred on the Abacus deal back in 2007 and its continued conflicts of interest (= value breakdown) . GS have also paid Mr. Tourre's legal fees. This has also brought on perhaps one of the most fascinating debates I have ever encountered on linkedin started by John Taft from Royal Bank of Canada on business ethics. Everyday somehow this financial crisis seems to be exposing more and more of our frail human nature in our business conduct, the entitlement culture, our selfish desires, misdemeanours, the exposed hidden truths and the wider damage this crisis has occurred largely due to the weakness of the system, breakdown in values and lack of moral leadership.

These examples affirm more and more in what Time MCG stands for. That we must change with renewed purpose and vigour in our corporate identity. We must learn to carry our responsibility, try to think of the wider consequences of our actions before we make a decision and be accountable for our failures in this desperate world. Finally we must urgently revert to a service above self orientated culture rather than the opposite and in particular the financial sector. This change must be led from the TOP and the upper levels of management and must be put into action.

GS on Wikipedia seems to have an ever increasing list of scandals. They all appear to be under the watch of their CEO Lloyd Blankfeid. Nothing we notice is written on their efforts and changes they are making in their culture or the transparent measures they say they are making.  Another ex-employee Greg Smith only last year described the corrosive atmosphere working in the London office similar as that of the Wild West. This latest scandal will no doubt have calls on further potential management resignations. All this has prompted as an outsider to look up the business principles and values of Goldman’s’ and to study those more closely in what might be causing all their scandals and perhaps offer a little help. The first few at the top of the list make economic sense notably customers’ needs and interest followed by profitability and shareholder returns.

However the great capitalist conflict and sentiment can so easily flare up and in this fast world of ours as so often the case powerful shareholders are thinking instantaneously or speculatively ironically led by many banks. ROI yesterday and profits tomorrow etc. Their own employee stock owner ship interest is mentioned as a business principle. All this brings in many extra and unnecessary burdens on a company which can often result in putting profit before needs of their customers whereby inciting poor conduct and greed. Or is it simply a matter of their well known unashamedly excessive high reward and fee system that puts employee interest before customer interest?

Time MCG believes that for the capitalist system to regain its credibility shareholders must revert back to focusing on the long term value of a company and reform is clearly needed in fees and remuneration. These are two areas where investment banks have an innate danger of becoming victims of their own success.

There are some very good things written such as pride in our professional work as well as creativity and imagination. It briefly mentions ethical principles that govern us. I would like to challenge Goldman’s what they mean by ethical principles and how they actually govern you? Further down two more are stated.  ‘We are a service business, without the best people we cannot be the best firm.’  ‘We offer our people the opportunity to move ahead more quickly than in other places.’ The former is vague other than thankfully they recognise that they work in a service business. The latter emphasises personal ambition and self above service which contradicts their leading principle. Needless to say that people can quickly be let down by having false expectations raised too quickly.

Another one that springs to light is ‘We aggressively seek to expand our client relationship.’ In our experience this one is unpleasant, again self above service which often breaks down our inner core value system resulting easily to mistrust and loss of integrity. Why don’t the customers come to you as a reflection of a proper service and trust instead of the other way round after all you are the best? Not to mention that this is hardly the climate to be at the receiving end of a so called aggressive banker.

Right at the bottom of their business principle, is honesty and integrity. These are probably the most important and challenging values and principles any business would like to have in their people and their culture particularly if you are a bank and you are involved in money.  We all know that within the financial sector such values as integrity and trust has had the stuffing kicked out of them in recent years. Some banks such as Barclays have got the message and are already working hard in real tangible efforts in re-creating trust and honesty. Unfortunately Goldman’s makes little effort in defining these values. Perhaps what with Greg Smiths assumption of the Wild West is it of no wonder these principles are at the bottom of their list and considered less important?

I have to say these principles are not coherent and do not bode well as a model of wisdom and developed intelligence that is expected of leading MBA graduates. I would have to challenge Goldman’s to enlighten the outside world with some serious reflections.  With such vast profits surely you carry a weight of responsibility in our economy therefore our society. As a highly secretive bank it is very hard to know exactly how you make your revenue. What is your actual purpose? Is it tangible? Do you have a vision? Are you really contributing or serving for the needs or benefit of others or vice versa?  How do you define success and what transparent efforts are you making in re-creating trust? Well informed sources have informed me of shocking examples of how traders have held on to vast quantities of commodities to the detriment of others in developing countries that are already suffering and in real need just to increase prices, demand and their own profits. Is this how you make your money or what you call in hiring the best people?

As for Fabrice Tourre, I don’t blame him. Instead I feel sorry for him as clearly he is a scapegoat of a wider cultural problem that is still endemic.  It is evident that he came into an environment that made him like this taken in by the trappings. This made him self-serving and seeing his superiors and elders do the same. In their eyes he was perhaps not cleverer enough in that he got himself caught. The sad thing is that in order for him to change for the better it will be a long hard road and he will suffer for it. The good news, he is still young and therefore he has time to re-invent himself for perhaps a greater and brighter future. Just find a better nick name! As for the old guard within GS management, their time could be running out or in all likelyhood we'll have Boris Johnson, the mayor of London,  come charging up on a horse, whipping their London office wearing a 10 gallon hat!

Lastly, on a wider serious note a question for the monetarists and economists out there, how come most western stock markets are at record highs when most of the countries they represent have been in recession? Who else out there is in their own imaginary bubble?

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