Effectively Managing Crises - the Global Financial Crisis in Perspective

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government bail­out as it was considered “too big to fail”(Bloom, 2013). 1

2) ​The role of key stakeholders Deducible from the points made above, is that the crisis can be framed as a systemic failure

which wascausedbyanarrayofexecutivebehavioranddecision­making(Carmassi,Gros,&

1 “Large, complex financial institutions with over 90% leverage with access to explicit deposit insurance protection have a “too big to fail” guarantee (Acharya et al. 2009).

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Micossi, 2009; Moshirian, 2011; Chan, 2011). In light of the crisis as a “managerial

catastrophe”, it can be critically evaluated by using concepts of the study and practices of

management.

The Financial Crisis Inquiry Commission (FCIC) (2011) remarked that “the sentries were

not at their posts, in no small part due to the widely accepted faith in the self­correcting

nature of the markets andtheabilityoffinancialinstitutionstoeffectivelypolicethemselves”

(p. xviii). This suggests that those in positions to regulate and supervisethefinancialsystem

had inadvertently enabled the crisis to unfold. However, to reduce the responsibility of the

principal agents of the crisis would be to deny their accountability. Moreover, it dismisses

arguments on the necessity of ethical conduct/leadership and corporate social responsibility.

So, who were the key stakeholder groups and what roles did they play in the crisis?TheUS

government, the corporations on Wall Street, and rating agencies are some significant actors.

First, let us begin with the US government. Perched high in the realm of economic

governance, government bodies are certainly responsible for the management of economies,

financial systems and the elements which comprise them. The US government (where the

credit boom and asset bustbegan,andthroughtheinterconnectednessoftheglobaleconomy,

spread to other countries) could arguably be criticized for poor managerial decision­making

in the policies implemented (Acharya et al., 2009).

As the FCIC touched on, the US government’s assumptions and expectations of the

self­correcting and self­policing qualities of the financial system, allowed for oversight of irresponsible and unsustainable behaviours by financial corporations (FCIC, 2011; ​Peters,

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Pierre, & Randma­Liiv, 2011; Bloom, 2013​ ). Expansionary policies leading up to the crisis and little regulation and supervision, could be considered as ignorance of growing systemic

financial risks at the national and international levels (Elson, 2015). Unable to manage the

onset of the crisis, the government took its role as a last­resort lender, rescuing the

corporations whom had a hand in the deterioration of the financial system (Acharya et al.,

2009; Bloom, 2013).

The financial corporations on Wall Street undermined corporate social responsibility by

undertaking illegal and or/ irresponsible conduct (Boyle & Mahoney, 2015).Banksarguably

did not behave ethically by handing out bonds that were at high risk of default to investors

(Yeoh, 2009).Moreprecisely,mortgageswereprovidedtoindividualswhowerenotlikelyto

be able topaythemback(referredtoassubprimelending)(FCIC,2011).Thedecisionsmade

on Wall Street that sought quick andshort­termprofitreflectedahigh­riskandunsustainable

organizational culture. This ultimately contributed to financial instability and their own

demise: a failure in corporate governance (Samson & Daft, 2015). However, how they were

able to provide these subprime mortgages without investors noticing is another issue.

Credit­rating agencies are firms offering judgements about the creditworthiness of bonds

issued byvariousentitiesbyverificationandcertificationservicestoinvestors(Richardson&

White, 2009; Yeoh, 2009). As gatekeepers, they are required to act independently, with

transparency, and to practice social responsibility and accountability (Yeoh, 2009). Yet,

major rating agencies in the US (such as Moody’s, Standard & Poor’s and Fitch)

demonstratedthecontrarybygivingoverlyoptimisticAAAratingstoun­creditworthybonds,

failing to spot excessive risk­taking (Richardson & White, 2009; Carmassi et al., 2009).

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There haveevenbeencontentionsthatratingagenciesmayhavecompromisedtheirratingsin

order to stay competitive in the stock market (Yeoh, 2009).

Although Wall Street and Washington claim that the GFC was unavoidable, it is difficult to

argue against the fact that it was a resultofhumanactionandinaction(FCIC,2011).Allkey

stakeholders had a role in the systemic failure through little consideration of effective

(long­term) strategic organizational planning (especially for crisis management), poor

managerial