bankers’ party story

November 24, 2008

Today’s New York Times has a story about the reckoning for Citigroup:

Our job is to set a tone at the top to incent people to do the right thing and to set up safety nets to catch people who make mistakes or do the wrong thing and correct those as quickly as possible. And it is working. It is working.

Charles O. Prince III, Citigroup’s chief executive, in 2006

I was immediately put in mind of Cognitive-Edge’s Children’s Party Story (the story is on page 1 of this article by Snowden). But something crucial was missing in Citigroup’s enactment. The problem is that you can’t act on mistakes if you don’t look for them:

Normally, a big bank would never allow the word of just one executive to carry so much weight. Instead, it would have its risk managers aggressively look over any shoulder and guard against trading or lending excesses.

But many Citigroup insiders say the bank’s risk managers never investigated deeply enough.

Citigroup is actually a step above many of their (often now defunct) competitors. Those banks appear to have actively discouraged any employee activities that even had the possibility of finding problems, since then they would be obligated to disclose them to the market (Sarbanes-Oxley) and thus depress their short-term share price.

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About the Cynefin Company

The Cynefin Company (formerly known as Cognitive Edge) was founded in 2005 by Dave Snowden. We believe in praxis and focus on building methods, tools and capability that apply the wisdom from Complex Adaptive Systems theory and other scientific disciplines in social systems. We are the world leader in developing management approaches (in society, government and industry) that empower organisations to absorb uncertainty, detect weak signals to enable sense-making in complex systems, act on the rich data, create resilience and, ultimately, thrive in a complex world.

Cognitive Edge Ltd. & Cognitive Edge Pte. trading as The Cynefin Company and The Cynefin Centre.


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