Tech & Work

Wall Street's model is broken. It can be fixed.

Much of the agony created as a result of poor results in the stock market could have been prevented. John M McKee writes that human nature and poor system designs resulted in an outcome which was very avoidable.

At BusinessSuccessCoach.net, we believe that compensation programs - for employees, managers, and executives, often result in unintended consequences. People always figure out what's best for them personally. They'll do what is required to ensure they get maximum benefit.

That, in a nutshell, is one of the fundamental problems with the Wall Street Model. It rewards players for short-term actions. Even when the outcomes of those actions could be harmful to their own clients and potentially dangerous for the organization that employees them.

Execs at companies like AIG, Countrywide, Fannie Mae, and Lehman earned huge personal earnings making decisions that resulted in a poor outcome for their customers, their organizations, and the U.S. economy. Many would have known the danger. But they were playing by the established rules. Few in such a situation would resist taking advantage of the system. After all, how long can you watch others become wealthy for doing "what's expected" by management without finally starting to drink the same KoolAid?

When designing a new compensation program for an organization, I always attempt to balance the long- and short-term goals to ensure the results are consistent with the organization's values and aspirations. Before implementation, those at the company who have broad oversight are asked to review the new program. Revisions may be made as a result of that review. I believe this is a fundamental of good corporate governance. It ensures that immediate goals are balanced with the long term viability of the organization.

As the former leader of a billion dollar organization myself, I would never advocate increasing bureaucracy, because it slows down a company's ability to compete effectively, but I'm a strong proponent of a system with checks and balances. These reality checks force everyone involved to consider potential hassles in advance. Wall Street in total has no such effective oversight.

Mega companies in the financial sectors will be often be "saved" by the Feds. That's good news for millions of people with investments or insurance programs that will now remain in place. But it's very bad news for U.S. citizens who, through their taxes, are forced to finance private enterprises that cratered while employees and management became millionaires.

The current meltdown of Wall Street has many similarities to the horror story that was a precursor to The Great Depression. Hopefully, the U.S. Government, working with the central banks of the international community, has the capacity to ensure it doesn't reach a similar outcome which would tank the world economy for years.

But we need a new model. Now.

john

Leadership Coach

About

John M. McKee is the founder and CEO of BusinessSuccessCoach.net, an international consulting and coaching practice with subscribers in 43 countries. One of the founding senior executives of DIRECTV, his hands-on experience includes leading billion d...

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