Why Some Firms Thrive While Others Fail – Governance and Management Lessons from the Crisis.

Author: Thomas H. Stanton

The book deals with the what and how of the mortgage bond crisis of about 2008. Only roughly because none of the organizations involved were not informed in advance. The book contains a great deal of historical material from the crisis, expressed in financial terms. A financial background helps to fully appreciate the book. Nevertheless, in the last chapter, the author takes up the challenge of extending the analogy with a number of non-financial organizations.

But what should we remember from this book?

First of all there are four principles of winners during crises:

1 ° Provide discipline and a long-term perspective.

2 ° Provide robust communication- and information systems

3 ° Provide the capacity to respond effectively to ‘early warning signs’ and

4 ° Ensure a constructive dialogue between the business units and the risk managers.

But there is more than that.

What are the differences between the firms that controlled the crisis and those who failed?

  • The winners nor the losers saw that the houses would decrease in value. But the “survivors” saw that the market moved in a way that they did not understand. Therefore, they reduced exposure to it.
  • The winners did research in 2006-2007 on the causes of the unexpected developments in the market.
  • JP Morgan differed from other organizations because they built up a financial reserve to take over other organizations if they would get into trouble because of the developments in the market.
  • Other companies failed because they took excessive risks at the wrong time in a narrow range of assets.
  • Successful organizations received a lot of feedback and engaged in constructive dialogues before taking on risks.
  • In some organizations, the CEO was actively involved in the decision to reduce the risk.
  • Successful organizations had a culture, supported by top management, that promoted constant communication between business units and the risk team and higher up the hierarchy.
  • When the successful organizations came into close contact, they again emphasized effective risk management.
  • Successful organizations had information systems that provided an organization-wide view on risks and their changes in time.
  • Perhaps the biggest problem is the immense pressure to deliver short-term performance. This prevents the installation of a risk management system.
  • Effective risk management requires expenditure and discipline, in order not to take short-term gain, which other organizations do, based on risky practices. Support from the CEO and preferably also from ‘the board’ is essential.
  • Risk management is part of all management. A strong information infrastructure is required both for managing the organization and for having an organization-wide view of the risks.
  • Make sure that risk management does not become a formality!
  • It is not easy to be a risk manager if the organization decides not to take the risks into account. You must always be able to tell your truth. Even if you are fired for it.
  • Although the markets and the risks become more complex, simple questions remain critical in order to guarantee a good decision. An important question with weird markets is “what is happening that we do not understand?”.
  • Winners discuss intense implications of threats.
  • Winners had drawn up models for the risk situations, but did not trust them blindly.

Reinventing Organisations

Author: Frederic Laloux

In his book ‘Reinventing Organisations’, the author seems to kick against holy houses. ‘Why do not we need this vertical structure?’, ‘Why, we can trust the employees in the workplace?’, ‘Why, the first value is not the maximization of profit for the stakeholders?’, ‘Why a machine worker can do a quality check within the perimeters of the customer? “,” Why, budgets should be discussed in team? “,” Why, the employees can learn from each other? “,” Why, we do not need a zilion hierarchical layers of control for efficiency gains, on the contrary? “,” How does the power belong to the employees? “,” Why, the employees can be smart, think problem-solving, spontaneously work overtime to get a piece of the job done, consult each other and feel involved in the work ? “,” Why, the latest generation of young people communicate differently, and how this can be accommodated with a horizontal organizational structure? “,” How the communication is many – to – many and not more one – on – one, and how, can Facebook – like communication within an organization help? “.

These are some of the first objections that are raised in this revolutionary book. This work is divided into three parts. In a first part, the author first discusses a history of organizational structures, from red to amber, orange, to green and finally cyan (turquoise). The author shows how this was appropriate for the zeitgeist and does not always have to be inappropriate in later periods. Some organizations are simply made to be hierarchical. In the army there must be discipline. In times of crisis, there must be a crisis management structure. It is not for me to say that the latter must always be hierarchically orange or amber or red, but may evolve into green or cyan. What these colors mean, for that I refer to the book, which goes deeper into it.

In a second part, the author delves deeper into structures, practices and cultures of cyan organizations. In doing so, the author goes deeper into all layers of the organization, not just processes, machines and projects, but also people and cultures. Very important here is the search for wholeness and the team structures, extensively illustrated by the organization ‘Buurtzorg’ in the Netherlands. Such types of teamwork are more attuned to the communication habits of youth, who are our future, who communicate many – to – many on the internet, and who for the most part no longer feel at home in a vertically structured hierarchical organization.

As proof of this, and for the fact that it works, the author quotes a series of organizations and their ‘personal’ stories about how they fared, how they performed well in the last decades, and even in the depths of the global crisis periods.

In a final part, the author talks about necessary and sufficient conditions for working a cyan organization, as well as addressing the setting up of a new or transforming an existing organization into a cyan organization.