Guest Post by Patrick Ow (first posted on CERM ® RISK INSIGHTS – reposted here with permission)
“Greed, for lack of a better word, is good. Greed is right. Greed works.” (Gordon Gekko, ‘Wall Street’ movie, 1987)
When energy-trading company Enron declared bankruptcy in 2001, it was the largest bankruptcy filing in U.S. history. Enron’s execs were pocketing millions while knowingly overstating the company’s earnings to shareholders through fraudulent accounting.
“Greed is good” even in the highly regulated financial services sector. UK’s Parliamentary Commission on Banking Standards sums it up nicely when it says, “Too many bankers, especially at the most senior levels, have operated in an environment with insufficient personal responsibility. Top bankers dodged accountability for failings on their watch by claiming ignorance or hiding behind collective decision-making. […] Remuneration has incentivised misconduct and excessive risk-taking, reinforcing a culture where poor standards were often considered normal. Many bank staff have been paid too much for doing the wrong things, with bonuses awarded and paid before the long-term consequences become apparent. The potential rewards for fleeting short-term success have sometimes been huge, but the penalties for failure, often manifest only later, have been much smaller or negligible. Despite recent reforms, many of these problems persist.” – with emphasis (Parliamentary Commission on Banking Standards, 2013)
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