Financial establishment could be held to account

The FBI fraud investigation at Fannie Mae, Freddie Mac, AIG and Lehman Brothers could be followed by examinations of the behaviour of regulators, bankers, accountants and other professionals on both sides of the Atlantic according to Prof. Colin Coulson-Thomas of the University of Lincoln. “The competence and standing of the whole financial establishment could be questioned. In addition to legal actions and negligence claims, professional bodies may question those who have been involved in developing, authorising, packaging, distributing and valuing the ‘toxic’ products that have caused so much harm.

“Various aggrieved parties may feel there is a prima facie case for suggesting that those responsible for the harm suffered by various organisations ??" and ultimately all taxpayers ??" have not shown the foresight and competence one might reasonably expect from highly paid professionals. Their actions, and activities they have supported, do not appear to have been in the best interests of their clients’ or the public.

“To avoid censure directors of UK companies experiencing substantial write offs and bail outs may need to demonstrate that they have been acting in accordance with the Companies Act, for example exercising reasonable care, skill and diligence and having regard to the likely consequences of any decision in the long term. Claiming ignorance of their company’s exposure to US mortgage loan defaults or that they did not understand the nature of a derivative or the implications of slicing and dicing debt will cut little ice.

“The credit crunch has exposed the inadequacy of many directors. The scale of public intervention required to prevent meltdown reflects a failure of boards to question and read the road ahead. Chief executive officers (CEO) and their senior executive teams have not been challenged or held to account. Certain implications and future scenarios should have been foreseen. Directors stood by while huge sums were paid out as bonuses and commissions for bringing what would prove to be time bombs into their organisations.

“Long experience of looking the other way and following the herd should no longer be a requirement for further board appointments. Directors who serve as a loyal supporter of the CEO have been in demand, when the emphasis should have been upon curiosity and courage ??" the curiosity to question and the courage to challenge. A new generation of directors are required, selected from people of integrity who have their feet on the ground and think for themselves.

“The most and the least successful directors and boards react very differently to an economic downturn. The main aim of struggling boards is to survive. New initiatives are avoided, and their focus is almost exclusively upon internal restructuring, cutting costs and related layoffs. Cutbacks tend to be hurried and indiscriminate. Headcount culls fail to distinguish between low and high performers. Valuable knowledge and experience is lost, and these companies become trapped in a spiral of decline.

“In contrast, the more successful directors and boards adopt a different approach. The focus is external and upon re-positioning and securing competitive advantage. They seek improved efficiency, productivity and performance. Strategic areas and high performers are identified, protected and better supported. The know-how and superior approaches of superstars are captured and shared. They make it easier for their people to cope with difficult situations, respond quickly and excel at key corporate activities.”

Prof Coulson-Thomas was a speaker at the 9th International Conference on Corporate Governance which was organised by the World Council for Corporate Governance and held at the Royal Overseas League in London on 18 and 19 September 2008. The theme of this year’s conference was making capital markets work through corporate governance.

Directors of over 4,000 organisations from smaller firms to major corporations and public bodies have participated in Prof. Coulson-Thomas’ research programme, which identifies critical success factors and successful approaches to the challenges faced by directors and boards. His books ‘Developing Directors’ and ‘Winning Companies; Winning People’ set out the different approaches of those who are most and least successful. Both are published by Policy Publications and can be ordered from: http://www.policypublications.com