American taxpayers have become
shareholders in AIG, GM, and so
forth. What’s the exit strategy?
The ideal exit strategy will be to sell
the shares when they have regained
much higher values, and I believe that
this is quite likely. Governments have
been involved in privatization
programs for decades, and one can
see the exit strategy as a privatization.
A real fear is that the failures of
government ownership and
operation may retard the recovery of
these firms, and I share that worry. At
this point, governments have become
the owners and managers of these
firms – with control over strategic
decisions that will shape these firms
for decades to come.
Regulatory reform will mean
higher capital requirements for
financial institutions. Won’t that limit
GDP growth?
Yes, and the various other regulatory
reforms will as well. Of course, the
self-inflicted damage by these
institutions is another factor that will
limit growth. And the damage to
economies and their businesses
cannot be reversed quickly. So
growth will be very slow to reach
former levels, and unemployment
will persist. A deeper question is
whether the higher capital
requirements will cause a shift in
lending and borrowing to non-banks
to an even greater degree and to
countries with lax regulations. This is
a far greater danger in the long term.
far greater danger in the long term.
Instead of attempting to regulate using
a patchwork of agencies, is it time for
BrettonWoods II, i.e., should there be
a new and powerful overarching
body (as suggested by UK Prime
Minister, Gordon Brown) controlling,
monitoring and regulating the
international capital flows?
Yes. But the disagreements over the
structure and responsibilities and
powers of such a global agency will
mean that its creation will be delayed
for a very long time. Realistically, we
may hope for a process of creation
and gradual expansion of the role of
such an institution.
The aim of economic regulation
should be the same in all sectors: to
facilitate fair competition among
players or, where natural monopolies
exist, to ensure fair pricing and
service levels. Greater competition
means stronger productivity growth,
which in turn means a faster-growing
economy and more wealth to share.
Yet governments everywhere struggle
to get regulation right. Unfortunately,
regulation often has a negative effect.
What can governments do to get it
right?
Professors in business schools have a
responsibility to participate actively
in this debate. Unfortunately, we are
in new territory here. Further,
regulators have serious problems in
the process of regulating, as I have
emphasized. So this debate will
continue for decades.
It is necessary to see the regulatory
process as experimental.
Occasionally, we may see a major
newpiece of legislation like Sarbanes-
Oxley that attempts to limit fraud by
demanding more extensive
transparency and accountability. But
even here it is necessary to wait and
see the unintended consequences of
such dramatic changes.
Should boards view the current
crisis as an opportunity to review the
way they function. During tough
times – and they haven’t been this – and they haven’t been this
tough for generations – directors are
supposed to ask difficult questions
about their companies. Yet they rarely
ask hard questions about themselves,
such as, “Are we the right people,
asking the right questions, providing
the right sort of leadership,
challenging management in the most
productive ways?” A healthy selfassessment
can go a long way toward
improving a company’s performance.
What kind of reassessment do you
suggest for the boards and their
directors?
Yes, absolutely. This is a time when
directors must take on greatly
expanded roles in policing what is
happening within the firm, especially
within financial institutions. Here,
again, professors in business schools
must take a leadership position in
analyzing and evaluating possible
changes. The subject is extremely
complex and again the answers will
not come quickly or with much certainty.
What are the major global trends
that businesses should be thinking
about? Do you envision new
approaches to management and new
ways of interacting?
I have just written a book on this
subject. It will be published by Sage
in the spring of 2010 and is entitled
The Global Environment of Business:
New Paradigms for International
Management. I find this to be a very
exciting subject of great importance to
both businesses and business
schools.
What specific three measures do
you suggest to ensure that such crises
do not recur? To what extent should
the government intervene in business
to check immoral behavior of
executives and / or entrepreneurs?
I
As I have indicated, I believe that
business cycles will recur in free
market economies. I also fear that legal
frauds will recur as a result of human
nature and the complexity of modern
financial instruments. Consequently, we have to operate in a far more
dangerous world than existed in the
past. Nevertheless, we must note that
there are significant differences
among nations in regard to these
dangers. The world leader, the US,
has a national culture that encourages
individual freedom, and this slips
easily into individual license to
maximize one’s personal gain
without consideration for the impacts
on others. Some other nations, and I
think of my nation, Canada, rest on
concepts like “peace, order and good
government” – and so not
surprisingly Canada has not been
hurt as severely by the financial
crisis. I do think that the subject of
ethics in business has become
increasingly important. Firms have to
consider the creation and inculcation
of codes of ethics. New legislation
such as Sarbanes-Oxley may be able
to change reporting for the better, and
may be able to make legal frauds
illegal. Governments may be able to
prosecute individuals who violate the
new laws. Finally, it is important to
emphasize that there will be a cost to
creating new regulations that are
necessary to apprehend the
inappropriate actions of only a few.
These costs will become apparent
only with the passage of time, and so
we must pursue this subject with
ongoing diligence.
The Interview was conducted by Dr. Nagendra V Chowdary, Consulting Editor, Effective
Executive and Dean, IBSCDC, Hyderabad.
This Interview was originally published in Effective Executive, IUP, January
2010.
Copyright © January 2010, IBSCDC
No part of this publication may be copied, reproduced or distributed, stored in a retrieval
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