The Leadership Myopia Behind the Meltdown

The Takeaway: The malady is obvious, the diagnoses differ, but everyone is damn sure something went seriously wrong with leadership in the financial sector.

Wharton management professor Peter Cappelli blames executive compensation schemes that focus too narrowly on individual financial goals. This sort of incentive scheme "seems to work for the people in charge, but is it really working for the company? It's certainly not working in the broader society... this is spilling over into the economy in a way that I haven't seen before."

In Cappelli's understanding, bonus money heals all management wounds. He cites "surveys of incoming MBA students who had worked in finance, and particularly in investment banking," which reveal "that managers in these fields are particularly harsh and ineffective... provide little feedback, expect long hours in the office even if they are not productive and destroy an employee's work-life balance." What makes up for this hellish treatment? Bonuses. Employees are left with a strong incentive to do whatever necessary to meet their targets. The strategy of the firm at large be damned.

Thomas Donaldson, Wharton professor of legal studies and business ethics, however, thinks the problem goes beyond a failure to keep an eye on the firm in total and encompasses a failure to understand the industry as a whole. He argues:

These problems are so tightly connected to broader problems in the overall financial services and banking industries. Everybody in those industries needs to be better attuned to slowly percolating [crises] and ethical issues.
Who's right? Who knows. But there's certainly plenty of blame to go around. For much more speculation on the whys and hows of the unfolding disaster, check out the complete article which also discusses the role of regulation and the pros and cons of the ongoing parade of government bail-outs.

The Question: We know you're thinking about it, so have a go BNET readers: what (or who) is to blame?

(Image of guys in stylish glasses and hats by rocketjim54, CC 2.0)