Sunday, December 21, 2014

We're not very good at learning from our mistakes, are we?

My husband, my friend Bala, and I have edited two books on Enron.  We edited the first one as a way of figuring out what had happened at Enron so that people could avoid making those mistakes again.  We did the second book after realizing that no one seemed to have learned from Enron, and we wanted to figure out why smart people don't learn from their mistakes.  (I'm talking with the publisher soon about a third edition, meant for both law schools and business schools.)

Two different articles this week made me realize that the willingness to learn from mistakes is a rare quality.  The first one, in the Wall Street Journal, involved a CEO who allegedly wanted his subordinates to lie about the company's financials (shades of, among other things, WorldCom).  The second one (here) has to do with Fannie and Freddie being willing to finance mortgages that have very low downpayments.  A three percent downpayment leaves the buyer with very little skin in the game.

So why don't we learn from others' experiences?  There's a whole slew of possible explanations, but the one that appeals most to me is the idea that humans will find a number of ways to fool themselves--maybe not consciously, but subconsciously.  After all, "we're" not manipulating financials; we're "adjusting" them to comport with the predictions that "must" be correct.  "We're" not encouraging people to lower their emotional and financial connections to their homes; we're "enabling people who wouldn't otherwise be able to afford a home to get one."  It's a frustrating business, this refusal to extrapolate from past financial disasters.  But it's a stubborn problem.

Saturday, November 8, 2014

Hat tip to Jack Ayer for pointing out this interview about ethics and finance.

Here.  My favorite paragraph in the interview?
The ethical subversions which have cost banks and their shareholders so much, the collusion and self-dealing, were genuinely frowned on in my parts of the financial world. However, the wide gap between our practices and our clients’ true interests was so inherent in our business proposition that I can easily imagine how such behaviour seemed perfectly appropriate to practitioners elsewhere in the firms.

Friday, October 24, 2014

Friday, March 7, 2014

Two reasons to watch the Dewey & LeBoeuf indictments.

Here's one.  The other one is the use of RICO to include lawyers in conspiracies (here).  It will be interesting to see if the two intersect.

Friday, July 26, 2013

CEOs and off-the-job behavior.

Today's New York Times includes a report by Floyd Norris on a paper that links a CEO's off-the-job rule-flouting behavior with an increase in the likelihood that the CEO's company is going to have to restate earnings or that it might engage in fraud.

I'm looking forward to reading the paper.  My gut tells me that people who routinely break some rules make it easier for them to break others (a la classic cognitive dissonance theory).  It's not a huge leap from that conclusion to the conclusion that people who report to rule-flouting CEOs will likewise be tempted to bend the rules.