Corporations, Globalisation and the Law series
Chapter 4: Think again: how good leaders can avoid bad decisions
Events in global finance have provided an abundance of examples of how capable leaders can get it wrong. But the problem is not limited to the financial sector. Other companies, regulators and politicians make bad decisions as well. Take the decision by Bush and Blair to invade Iraq; the decision to base a new global airline alliance in Zurich that led to the bankruptcy of Swissair; and the delay in deploying the Interagency Incident Management Group while Hurricane Katrina lashed New Orleans, due to a continuing belief that the levees were holding out. In the financial sector credit ratings agencies judged some financial instruments to have low risk, when they proved to be high risk. The regulators judged that banks, wholly dependent on the wholesale capital markets, like Northern Rock plc, were stable. Sir Fred Goodwin and his board judged that the value of ABN AMRO’s assets were as stated by the auditors even after the crisis had demonstrated that it was impossible to value many derivative products. Managers at Barclay’s decided that it was acceptable to submit false data into the process for calculating LIBOR. Looking back, these judgments seem incredible – what could they have been thinking? This chapter is about what goes on in the brain of someone making a decision and about why otherwise capable man- agers make flawed decisions. Our brain processes were evolved to cope with the pressures facing humankind over the last million years. These processes have strengths and weaknesses. Flawed judgments are a result of the weaknesses.
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