1. There is no such thing as ‘Too Big to Fail’. Success can make the best of us dizzy. The investment banks, in 2007, were big bloated institutions – employee salaries had little to do with the amount of value they really added, undue risks were being taken without any foundation or back up, balance sheet holes were being covered by valuing assets wrong among others.
Eventually, the situation came to a head, of course. Lehman Brothers’ fall spelt the beginning of the end for ‘investment banks’ as a type of financial institution and resulted in the worst recession since ‘The Great Depression’
2. Firms are reflective of the people who lead them. Too Big to Fail is written from the point of view of all those influential men (CEOs, Key US Treasury Officials) who played massive roles in the crisis. And what is amazing is that even though each of these firms had 1000s of employees working for them, their fates were decided by that vital few and in many cases, by their leader. The leader’s personality reflected the firm’s response.
Big Lesson – The importance of leadership can NEVER be understated – especially in the time of a crisis.
3. The issue with losing sight of your core business. Imagine what it would look like if Google stopped focusing on search and just went on an endless spree of mergers and acquisitions? To most, it would seem like Google has sold it’s soul for the sake of profits and the lure of money.
This typified the kind of wild expansion the investment banks and insurance firms undertook. So much so, that, when Hank Paulson (ex US Treasury Secretary) was on phone explaining to George Bush about the possible impacts of an AIG bankruptcy on the world economy, Bush spluttered – ‘Does an insurance firm really do all that?’
Big Lesson – Keep constant focus on your core capabilities. It always pays off in the long term.
Here’s to getting your hands on a copy of ‘Too Big to Fail’ this week.. ;-)
A Learning a Day 