The dramatic fall of MF Global into bankruptcy on Monday, November 1, 2011 is widely blamed on the risky trades of Jon Corzine, who had a highly successful career at Goldman Sachs for 25 years.
Corzine chairman and chief executive at MF Global, directed the company’s investment strategy and he was probably the compliance officer too.
Who in the firm was going to stand-up to him? Nobody!
Many former Goldman executives are known for making serious blunders at firms they founded or led. For example, Corzine incurred $44.4 billion in liabilities with only $1.4 billion of equity, John Thain at Merrill Lynch took on too much risk on a weak balance sheet and a year later had to sell the firm, and Robert Ruben’s leadership caused Citigroup to lose 70% of its shareholder value.
Lessons for Us in Middle Market Companies and Small Businesses
These examples provide an important lesson for those of us who do not work on Wall Street, but work on Main Street. How could these smart former Goldman senior leaders excel within Goldman, yet fail so catastrophically at their own firms?
William Cohan, author of Money and Power, How Goldman Sachs Came to Rule the World provides the key insight. “The one thing Goldman really does well, better than everyone else,” he said, “is the internal accounting and compliance function. They give those people a lot of power.”
This is the special ingredient at Goldman, as well as in middle market companies, family businesses, and small firms. Goldman eagerly wants big risk-taking by its leaders, but it also empowers its risk managers to constantly challenge even the most senior leaders to keep them from falling off cliffs.
How many of our companies have a culture that empowers our team to present to a top leader (including the CEO or Founder) well thought-out externally validated reasons why a top leader’s well intentioned major decision is just nuts? How many times do we as the leader not only listen with open thinking, but go with their collective wisdom and have it hold?
It is hard to imagine how Corzine, Thain, and Rubin could have gotten away with so much excessive risk at Goldman with its culture of internal controls.
Are you open to receiving well thought-out tough love from your leaders?
Chas Klivans spent 22 years increasing shareholder value as a Co-Founder and CEO until 2001, when he launched The CEO’s Navigator. The firm has developed a new integrated business solution called Innovation2 (www.InnovationTwo.us), which improves company wealth creation and builds management into an A-level business team. Chas is a frequent advisor, speaker, and trainer for corporations, professional societies, trade associations, family business councils, and an approved Vistage Speaker.
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