Why Some Firms Thrive While Others Fail

Governance and Management Lessons from the Crisis

Thomas H. Stanton

Includes personal interviews from five CEOs of financial firms, a dozen risk officers, and numerous traders, investment bankers, and mortgage lenders
Draws on public material at the FCIC permanent website and helps make it accessible to researchers and the public
Discusses the fundamental difference between firms that failed and those that weathered the crisis
Looks at financial and nonfinancial firms and finds the same pattern of company management
Argues that the financial services industry, by repeatedly trying to undermine regulators and prudent regulations, lobbies against its own best interests
Provides a valuable record of the inner workings of financial firms and regulators before and during the crisis
Interviews from participants who speak in their own words about what happened
Shows fundamental weakness in both private firms and government agencies
Argues that the regulated companies have a stake in promoting the quality and capability of their regulators so that regulators become a source of useful feedback

Why Some Firms Thrive While Others Fail

Governance and Management Lessons from the Crisis

Thomas H. Stanton

Description

The financial crisis revealed fundamental shortcomings in both public and private American institutions. While the firms that were successful each found their own way to weather the crisis, unsuccessful firms were remarkably alike in their inability to cope and in the mistakes they made.

Combing through the wreckage, Thomas H. Stanton examines which financial firms survived the crisis and which ones failed. He analyzes how differences in governance, organization, and management between these firms led to their success or failure, and how government supervision and regulation failed to prevent the crisis. Based on interviews that the Financial Crisis Inquiry Commission conducted with CEOs, risk officers, traders, and others at major financial firms, Stanton systematically outlines how successful firms, like JP Morgan Chase, Goldman Sachs, Wells Fargo, and others used a multitude of approaches to distinguish themselves in operational competence and intelligent discipline, while unsuccessful firms, like Fannie Mae, Freddie Mac, and Countrywide, and others uniformly failed to prepare for possible low-probability, high-impact events. Stanton concludes by issuing a call for strengthening organizational design, governance, and risk management, by identifying clear attributes that distinguish successful firms from the others.

Why Some Firms Thrive While Others Fail is an invaluable resource for company officials and policymakers on the development of a risk-sensitive, more-successful culture. It also provides an essential foundation on culture and governance for students of business and public policy, practitioners within the public and private financial institutions at the center of the recent financial crisis, and those at risk of playing roles in possible future crises.

Why Some Firms Thrive While Others Fail

Governance and Management Lessons from the Crisis

Thomas H. Stanton

Preface
Chapter 1. Repairing our Public and Private Institutions: A National Imperative
Chapter 2. Dynamics of the Financial Crisis
Chapter 3. Coping With the Crisis
Chapter 4. Company Governance and the Financial Crisis
Chapter 5. Risk Management and the Financial Crisis
Chapter 6. Company Organization, Business Models, and the Crisis
Chapter 7. Supervision and Regulation of Financial Firms
Chapter 8. Hyman Minsky: Will it Happen again?
Chapter 9. Governance and Management: Lessons Learned
Chapter 10. Governance and Management: Beyond the Financial Crisis
References
Index

Why Some Firms Thrive While Others Fail

Governance and Management Lessons from the Crisis

Thomas H. Stanton

Author Information

Thomas H. Stanton is a fellow of the Center for the Study of American Government at the Johns Hopkins University. He is the author of A State of Risk: Will Government Sponsored Enterprises be the Next Financial Crisis? and Making Government Manageable: Executive Organization and Management in the Twenty-First Century.

Contributors:

n/a

Why Some Firms Thrive While Others Fail

Governance and Management Lessons from the Crisis

Thomas H. Stanton

Reviews and Awards

"Tom Stanton has given us a cogent and powerful analysis of the key forces that catapulted America to financial disaster. Through this book and his impressive work for the Financial Crisis Inquiry Commission, he has provided us a roadmap to help avert future catastrophe. It is a major contribution to our understanding of the financial and economic crisis that continues to grip our nation."--Phil Angelides, Chairman of the Financial Crisis Inquiry Commission, former State Treasurer of California

"Tom Stanton's book should be high-priority reading for senior managers and policymakers. Careful consideration of the well-reasoned arguments in this book will necessarily be part of any serious effort to reform our financial regulatory system, strengthen firm governance and risk management, and promote greater overall financial stability--all critical prerequisites to assuring a strong and resilient economy, and rising standards of living, over time."--Rich Spillenkothen, former director of Banking Supervision and Regulation, Board of Governors of the Federal Reserve System

"Governance failures were central to the financial crisis, and they continue to be a primary focus of post-crisis financial regulation. Why Some Firms Thrive While Others Fail is a serious appraisal of the lessons behind those failures, and a guidebook for managers who hope to make effective risk management a cornerstone of their companies."--Eugene A. Ludwig, former Comptroller of the Currency, Founder and CEO of Promontory Financial Group

"Tom Stanton makes a powerful case for constructive dialogue inside companies and between companies and regulators to reduce unnecessary business risk. Such dialogue between those responsible for performance and those responsible for integrity materially improves the chances the problems are defined properly, key factors are properly weighted and ultimate decisions are sound."--Ben W. Heineman, Jr., Senior Fellow at Harvard School of Law and School of Government, former Senior Vice President-General Counsel, General Electric

"Tom Stanton told us in 1991 that the fatal design of government-sponsored enterprises would escalate risk in housing finance. He was proved right-too late. Now he explains the management and organizational characteristics which provide for survival, while the less prepared are collapsing, in the inevitable hard times of financial cycles. We need to concentrate on remembering these lessons when the next boom gets rolling."--Alex J. Pollock, Resident Fellow, American Enterprise Institute, former President and CEO, Federal Home Loan Bank of Chicago

"Drawing from many interviews conducted by the Financial Crisis Inquiry Commission, Stanton's book considers how various important firms dealt successfully with such uncertainty (or failed to do so with disastrous results) and the severe organizational stresses and dynamics involved as financial events that were considered impossible by many or most people nevertheless became reality. The personal accounts of discussions, arguments, and decisions about riskiness, often enough career-ending ones, instructively display the uncertainty always involved. What is truly needed, and what Stanton's book so interestingly explores, is how organizations can facilitate the Minskian dialectic of enterprise and prudence, and how they can improve their chances of making sound judgments in the face of ineluctable uncertainty."--The American