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A trip down memory lane

— PHOTO: AP

WINDING UP: Mo Grimeh, a Managing Director who worked at Lehman Brothers for ten years, reacts as he leaves the company’s headquarters in New York City after hearing the news that the company may be forced to seek an orderly winding of its businesses.

Once big names, Enron, WorldCom and Arthur Anderson had all gone into history one after another in double quick time early this decade. Even as Lehman Brothers moved to file bankruptcy papers, the U.S. Government has hurried to rescue the beleaguered AIG (American International Group). Just a few months ago, Washington did the same to two big mortgage lenders - Fannie Mae and Freddie Mac. A short trip down memory lane, one could find what had happened to Bear Stearns. History has a knack of revisiting us. Merril Lynch changes hands. And, the market is constantly agog with rumours of one big company or the other going on the auction block.

Often, one wonders why such big names encounter sudden deaths. One crisis or the other is blamed for their demise. The reason, however, lies within the organisations. A common factor in all these `deaths' is the financial shenanigans of the top management.

These are very well chronicled by investigative authorities. The latest crisis has blamed it on the sub-prime woes in the U.S. Basically, the crisis, it is argued, is triggered by unbridled distribution of housing mortgages to buyers with inadequate credit-worthiness. Traditionally, banks gave home loans directly to customers.

In modern banking, the banks have sort of become intermediaries, creating a chain of upstream and downstream links in the process. Not surprisingly, the impact of any adverse fall-out reverberates across the entire chain triggering across-the-board disturbances. This appears very simple. It is, however, very complicated to comprehend.

All these are no small names. Yet, they fail miserably. Why? More often than not, companies in India are tutored on the need to buck up and follow the global standards and practices.

Analysts and consultants are aplenty - both from within and outside - who never skirt an opportunity to deride the Indian systems and practices. They always push for adopting the global - read U.S. - practices as benchmarks. If they have secure systems and standards in place, how could they go bust? An easy answer is well nigh difficult. Competition, no doubt, has done huge good to the economy at large. In the same width, it has also set off a previously unheard of kind rush to win a piece of the valet of a consumer. In the dog-eat-dog world of competition, corporates/banks across the world have stooped to low levels to win business and boost margins. As they rush in to write more business, the rules of the game are flouted. And, they are left ruing in the end.

As in life, in business too, practices should be in sync with preaching.

The problem lies with those who administer these practices in their respective organisations. Perhaps, the individual greed has combined with the organisational greed to plot the downfall of these big names. All these are more to do with pressures on the modern day managers to make quick bucks. And, these pressures are accentuated by the taxing demands from various stakeholders. And, the need of the hour is fairness in conducting business.

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