Learning the right lessons from the credit crisis as normalcy slowly returns
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Ebenezer Scrooge was a banker, and through the visitations by the Ghosts of Christmas Past, Christmas Present, and Christmas Future experienced a personal epiphany. The Scrooge that emerged from that experience bore little resemblance to what the world knew or thought of him beforehand.
The Dickensian character in that long ago story was in need of humanizing and personal transformation. What personal epiphanies today would be useful to us and our owners? What lessons have the Ghosts of Credit Past and Credit Present taught us that we can learn now, so we don't face an unhappy future?
Rough time to be a banker
First, the contrast in personality types between what Mr. Scrooge was and what he became is striking. From the persona of a hardnosed, tightfisted banker emerged a very sympathetic character, one ultimately seen as generous and caring.
Today, I suspect that our customers and prospects consider us to have gone through a reverse transformation, in the space of a few short years. We have become, to many of our former friends, objects of their frustrations and anger.
How did we end up in this situation, going from friend to foe, from hero to villain?
I suspect that we all understand that we are at least to some extent complicit in the pain of our customers. We didn't always do what we should have done in terms of how we underwrote credit and assessed risk.
Instead, too often we piled credit on top of concentrated credit until the sheer weight of it caused it all to sink. It took some of our customers and some of our own employers to their doom. It didn't kill all of us, or for that matter all of our customers. But it interrupted many lives and livelihoods along the way.
Will we learn from the crisis?
That there is lots of blame to share with other market and industry participants over the last five or six years doesn't make the consequences any easier to bear.
It's too bad for us we were blind to Scrooge's experience-nor did we have any spirit showing us what might come to be if we didn't mend our ways.
And so we were unable see the coming consequences of our irresponsibility. That some of the wreckage was caused by carelessness, hubris, and folly in a reverse chronological order is something that we'll have to live with whether we as individual practitioners were personally guilty of these things or not.
Had we had some "Ghost of Lending Future" to warn us, perhaps we'd have changed our direction and avoided the worst of what we've experienced.
As we approach another yearend we will go through the ritualistic toting up of debits and credits. It would be well to remember during this process that we are intelligent creatures. We are capable of learning from our past mistakes and achieving different outcomes in the future.
Acknowledge the past, and build a better tomorrow
What seems so difficult to many market participants is how to assess the root causes of our problems. To me, the elephant in the room that we need to acknowledge and discuss is our own sense of personal responsibility for our current circumstances.
The media and the congressional debate in past months focused much on greed and unbridled personal behaviors centered on financial gain. The coverage frequently discussed compensation systems that incented the wrong behaviors and evidenced ignorance or unawareness of the common good. Now the industry has the Dodd-Frank compensation sections to deal with, as well as increased regulatory attention to compensation.
But let's reflect, out of the limelight, that, perhaps, somewhere along the way, we forgot the common good.
"Common good" is a concept about sharing the responsibilities for outcomes in which we have participated in forming and shaping the inputs. We share in the responsibilities of achieving reasonable and appropriate outcomes for our personal behaviors in a collective way. That's a concept that must seem, to some, as old-fashioned or "retro." Perhaps we forgot this in the midst of the frenetic, competitive financial chase.
Some have said that we lost sight of our personal values during these recent years. That may be a plausible bit of reasoning in one sense, but it avoids the painful introspection that is necessary in developing any sense of a personal ethic. We need to compare our collective behaviors with our perceived values.
Perhaps there is a disconnect that we are not fully aware exists and some changes may be in order. We probably assume that our coworkers and customers understand common behavioral ground rules. But I think that the record of the last few years suggests that there is a lot more work to do.
To regain the high ground, we need to remind ourselves that our actions have consequences and that the consequences can have disparate and potentially harmful impacts on our coworkers, customers, and our owners.
This is commonly described as "constituency analysis." Experience has taught most of us that in our interpersonal activities we cannot seriously prefer one constituency without disadvantaging another.
Ethics: An ongoing business challenge-and an approach
I am not one who thinks that a code of ethics is the ultimate answer, although it may be a part of the answer. Have you noticed how most discussions on ethical behavior start out by seeking common ground or consensus in Judeo-Christian ethics? We are a much more secular society today than we were a generation or two ago, so there is less consensus around what these principles actually mean, in a shared values sense.
And then there's a risk: Just because we may agree, one with another, on what they mean in no way guarantees that we will act in a way consistent with that belief.
I suggest instead that it's time to think inclusively around simple sets of explicit, behavioral norms of what are the expectations of a particular group. This needn't be particularly complicated stuff. Think in terms of behaviors unique to a group: medical ethics or legal ethics or behaviors expected of our fellow members in a bowling league.
If we want to change the behaviors in our bank, why not start by defining our expectations of workplace behaviors by anticipating their consequences?
Most of us assume a common base of expectations on workplace behavior, but how frequently are we disappointed? Even simple things like appropriate workplace dress are very difficult to formulate other than by explicit guidance. Too much diversity in workplace opinions and behaviors are not necessarily a good thing and certainly not something that is easily administered in the managerial sense.
When I started out many years ago, a white shirt and neck tie was the explicit norm for men. Not too many years later as CEO I was wrestling with the permissibility of body piercing on the teller line.
Back to the Ghost of the Future
Rewrite in your own minds the Scrooge story about the Three Ghosts of Christmas but with the precondition that everyone shares a common set of expectations on what constitutes appropriate behaviors that contribute to the common good.
What a transforming and liberating process that might be.
It's one way to chart a new course in 2011 and one that might make a huge difference. Our businesses are healing as this old year ends. Let's resolve that our recent trip down this difficult path has been sufficient to last a lifetime.
After all, even Ebenezer Scrooge mended his ways.
In upcoming columns Ed will explore resolutions for lenders and other bankers for the New Year.
About Ed O'Leary:
Veteran lender and workout expert O'Leary spent more than 40 years in bank commercial credit and related functions, working with both major banks as well as community banking institutions. He earned his workout spurs in the dark days of the 1980s and early 1990s in both oil patch and commercial real estate lending.
Today he works as a consultant and expert witness, and serves as instructor for ABA e-learning courses and a frequent speaker in ABA's Bank Director Telephone Briefing series. You can hear free audio interviews with Ed about workouts here. You can e-mail him at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it . O'Leary's website can be found at www.etoleary.com.
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