Leaders Fail to Recognize Risks

A new book detailing the events leading up to the recent global financial crisis hit the shelves this week and it is a compelling read.  Entitled "The Sellout", the book provides an inside look within the largest financial institutions that contributed to the massive meltdown.  Author Charlie Gasparino provides a candid view of the leaders at these organizations as the Wall Street Journal reports below.

Mr. Gasparino chronicles how, across Wall Street in the years before the 2008 crisis, managers with a healthy fear of risk lost corporate power struggles to men more likely to ignore it. Stanley O'Neal, who climbed to the top at Merrill Lynch, would use the company helicopter to visit his favorite golf courses but never found time to learn about his firm's multi-billion-dollar "warehouse" of collateralized debt obligations. Even after Mr. O'Neal was fired in late 2007, Merrill's board somehow decided against hiring Lawrence Fink, a mortgage-market expert, and instead hired John Thain as CEO. During the interview process, Mr. Gasparino reports, Mr. Thain never even asked to see details on the assets that were generating billions of dollars in losses. A spokesman for Mr. Thain denies this account.

While many factors played a role in the crisis, it is apparent through Mr. Gasparino's book that a large portion of the blame rests on the failure of  leadership to understand and appreciate the risks they were taking.  This is a primary reason that leaders must demand strong enterprise risk management practices at their companies.