New School Management

By Wade Lee Hudson

When it comes to understanding Wall Street, my favorite blog is The Baseline Scenario by Simon Johnson and James Kwak. When they recommend something, I usually check it out.

One reason I like their blog is that they sometimes go far afield to look at an issue from a fresh perspective. Like Kwak did when he posted “Gut Instinct Doesn’t Matter.”  and commented:

I’m no fan of the genre of CEO interviews published in the Sunday Times. But this past Sunday’s CEO-of-the-week column featured Marcus Ryu, a good friend and someone I’ve worked with at three different companies. 

Marcus is not only very smart and someone who really knows what it’s like to build a company from the ground up, but he’s also someone who has thought very hard about what it takes to succeed as a company and what a company needs in its CEO. Unlike many CEOs, he doesn’t believe in gut instinct or the magical ability to judge character. He believes that success in business is hard and, as I’ve heard him say many times, there never is a day when suddenly everything becomes easy. If you are or want to be a CEO someday, I recommend it.

I don’t want to be a CEO, but I have been very interested in “democratic management” for a long time. If those of us who want to foster lasting social change are to become more effective, we need to improve how we relate to one another. So I clicked on the link.

When I saw the title of the interview is “Finding Purpose in Tunneling Through Granite,”  I knew I wanted to read it. Deep into my second reading of The Myth of Sisyphus by Albert Camus, I relate to the ideal of pushing the boulder up the hill repeatedly with a smile of my face
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But little did I know that I would discover some new gems of remarkably eloquent inspiration.

Ryu, a maker of software for the insurance industry, says, “We wanted to create an enduring business with a very strong set of values. We chose integrity, rationality and collegiality.”

That got my full attention. A unique and powerful blend of core values, somewhat similar to the three that I’ve defined as the foundation of my worldview: compassion, humility, and collaboration.

Rya said, “Integrity is: simply tell the truth….  There’s never any ambiguity. We’re either going to win honestly or we’re going to not win at all, and that’s the way it’s going to be.”

In a world that is filled with lies, misleading information, and people who are afraid (often with good reason) to be honest, it’s heartening to see this affirmation in the Times. Fortunately, young people seem to be more transparent these days. A hopeful sign.

Ryu’s second key value is rationality. He wants to “make decisions based on facts and logic.” Given that commitment, “titles don’t matter, and gut instinct doesn’t matter. Even experience is of very limited value. The facts have to speak.” Consequently, one of his “mantras” is “no wishful thinking.”

As one who has only recently acknowledged my tendency toward wishful thinking, or relating to illusions, I was encouraged by Ryu’s mantra.

Ryu’s third value is “collegiality, which means minimum hierarchy.” He says, “We’re going to create a community of equal professionals.”

Wow! This is not the corporate world I know.

The history of Ryu’s latest company, Guidewire Software, is also interesting. He says that the six founders “spent the first week just pondering these longer-term questions. We said we have to consecrate our principles in a document that we will refer to over and over.”

This report also resonated with my own conclusion that it’s important for collaborators to really discuss and agree on core values, and put that agreement in writing! Just like marriage vows. Or the creed for a spiritual community.

In the past, I’ve moved too quickly and assumed common ground without first having a full discussion and reaching an explicit commitment. Never again.

My bond with Ryu deepened when he said:

The thing I most dislike in an employee is two-facedness, where they manage up in a very diplomatic and collegial fashion, but they’re a tyrant down. That’s a very common duality that you see in the business world, and it’s pernicious because you may not realize the problem for a long time. One of the great dangers for people in my kind of role is that people are always so deferential to you. They’re always so solicitous and careful about your needs that you may get the false impression that this is just the way they are, when in fact they may be just doing that only in this very narrow context, and they are different elsewhere.

Hypocrisy is hard to handle. As is being deferential to some and domineering toward others. Unfortunately, these characteristics are common in our society. If we are to grow compassionate communities that can make lasting change, we must overcome these tendencies.

Ryu’s comments on how he facilitates meetings are also interesting. He says:

We have people make a commitment to their colleagues by saying, ‘In the next day, I will achieve this.’ That is all the motivation you need. You don’t actually need any other kind of managerial layer on top of that. Just the simple fact that I have spoken in front of my colleagues and said I was going to do something, and then the next day I’m going to have to come back and say whether it was done or not, is all the enforcement and motivation you need…. 

There’s just an implicit pressure that you have to say something reasonably ambitious and substantial…. It’s just another example of trying to maximize the transparency and use this incredible power of a combination of self-imposed and peer pressure. If you have the right people, it’s actually infinitely more powerful than a command or a dictate.

The concept of a combination of self-imposed and peer pressure was new to me. It seems that with a good balance, the two can reinforce each other in an upward spiral. Another example of balance!

And no more will I be reluctant, or forget, to ask for a review of individual commitments at the end of meetings. Accountability is critical.

When asked “Do you have certain expressions you repeat often?” Ryu answers:

Another is this idea of embracing adversity. It’s been very hard to get here, and we should take pleasure in how hard it has been…. My expression for it is “tunneling through granite.” I say that we have tunneled through granite to get to this point, and there’s an infinite amount of granite left. We’ll never get through it all. So you have to decide: do you actually enjoy tunneling and want to be part of this, because I’ve got nothing to promise you besides an infinite amount more of granite. People have said it’s a little gloomy. It’s like you’re just saying it’s nothing but blood, sweat and tears forever, for all of eternity. And so I’ve tried to lighten up about that.

Well, yes. Lighten up. Keep that smile on your face. Don’t forget to love the universe. But face the facts nevertheless. Progress is never-ending and it requires discipline.

Ryu then makes it clear that he keeps his rationality in balance too. He says he has “a lot of faith in the power of words and the power of ideas.” But at the same time, “Rationality plays a very limited role in persuasion, [which is] mostly about emotion. It’s mostly about empathy, authenticity and commitment. These kinds of things are what persuade and it’s the reason that people make big decisions.”

Closing the interview, Ryu says:

One of the main things people want to hear from their leaders is optimism about the future. They want to hear truth, but when you’re talking about the future, they want to hear optimism, like: “I stand before you. I’m here for the duration. We’ve got some challenges. We’re equal to them. Nothing we have to do is harder than what we’ve had to do to get here. And we’re going to join arms and be shoulder-to-shoulder and we’re going to succeed as we never have before.” And that, in some form, is the message that you have to give every time.

Yes, we are going to succeed as we never have before. It may be slow and bit by bit. Or it may be sudden and dramatic. No one knows. All we can do is to keep on pushing and spread contagious happiness.

I’ve long had many problems with corporate America. But in recent years, I’ve discovered that the corporate world can be a source of valuable information. That was the case with this wonderful interview. I picked up on one or two new concepts, but its main value is that it reinforces the direction I’m headed. And it reassures me that I am not alone.

Why We Need to Reform Wall Street

By Wade Lee Hudson

The fundamental restructuring of our financial system is essential because Wall Street negatively impacts every aspect of our society.

Most big bank profits come from buying and selling financial instruments (“paper”) – not from making loans to businesses and consumers. With its lucrative trading in this nonproductive “paper economy,” Wall Street has helped to hollow out industrial America by sucking money out of the “real economy.” One-third of our nation’s corporate profits goes to the financial sector and that percentage is increasing.

When their speculative bubbles burst, Wall Street inflicts even greater damage on the economy. More unemployment and increased poverty result. But the big banks love instability because it enables them to make even more money, partly by betting beforehand that bubbles will burst.

Economic stagnation results in reduced revenues for local and state governments, which weakens their ability to provide vital public services.

The big banks are so important to the economy taxpayers must bail them out when they get into serious trouble in order to prevent catastrophe.

Thanks to federal subsidies that give them competitive advantages, the big banks are driving our community banks (the traditional source of loans for consumers and businesses) out of business.

Their obscene greed cheapens our culture.

Their cheating, fraud, and other violations of the law undermine confidence and encourages more of the same.

With most of the nation’s total banking assets, the biggest banks hold enormous political power. And they use their power to block positive reform, including progressive tax reform.

All of these elements contribute to social discord, widespread anger, and despair.

But if the American people unite to assure that our banks serve the public interest, we can help lay the foundation for transforming our nation into a truly compassionate community.

Big Bank News (April 2013)

BIG BANK NEWS

Published by Reform-Wall-Street.org

April 2013   Vol. 1, No. 1

Big Banks Face Fierce Heat

   The month of March witnessed a major increase in the pressure to break up the big banks, which are even more dangerous now than before the 2008 crisis.
   Contradicting the Obama Administration’s talking points, Federal Reserve Chairman Ben Bernanke shifted his position and declared:

Too Big To Fail is not solved and gone. It’s still here. I agree with Elizabeth Warren 100 percent that it’s a real problem…. Too Big To Fail was a major source of the [2008] crisis and we will not have successfully responded to the crisis if we do not address that successfully.

   In a Washington Post editorial titled "Stop Subsidizing Wall Street," Thomas M. Hoenig, vice chair-man of the Federal Deposit Insurance Corporation (FDIC), called for restoring the wall between commercial and “investment” banking:

Government guarantees should be limited primarily to those commercial banking activities that need it to function: the payments system and the intermediation process between short-term lenders and long-term borrowers. Non-banking financial activities such as proprietary trading, market making and derivatives should be placed outside of commercial banks and so outside of the safety net.

   The head of the Dallas Federal Reserve Bank, Richard Fisher, garnered a great deal of publicity for his three-point plan to end too-big-to-fail banks. In particular, his appearance before the high-profile Conservative Political Action Conference, where he called the big banks “crony capitalists,” generated widespread coverage.
   Local newspapers throughout the country came to the defense of local community banks that are being unfairly driven out of business by the big banks.
   Many of these papers expressed outrage at Attorney General Eric Holder’s admission that he considers megabanks “too big to jail.”
   The Cyprus bank crisis not only made many Americans worry about the security of their own deposits. It also reminded us that banks use offshore tax havens to avoid paying taxes.
   The Senate unanimously adopted a non-binding amendment calling for an end to big bank subsidies, which are ongoing.
   The Senate also adopted another amendment that would facilitate the criminal prosecution of U.S. financial institutions that break the law. [Lanny A. Breuer, the man who headed the Justice Department investigation into the financial crisis, retired and landed a cushy job on Wall Street, as is common with government officials with responsibility for regulating Wall Street.]
   More than 38,000 people joined the call on the Maryland Attorney General to strip the charter of HSBC, the bank that paid a record $2 billion for money laundering.    
   More than 140,000 individuals signed the “Tell Obama to end too big to jail” petition.
   CREDO’s petition demanding that Holder resign if he won’t prosecute criminal bankers drew more than 150,000 signatures.
   Senator Bernie Sanders announced plans to introduce legislation to break up the big banks.
   Democratic Senator Sherrod Brown and Republican Senator David Vitter said they’ll introduce legislation to raise banks’ capital requirements, which could spur them to split their operations.
   Reports that Senator Brown may become the next chair of the Senate Banking Committee caused a stir in the pro-Wall Street press.
   Senator Elizabeth Warren performed a stellar job holding officials feet to the fire.
   JP Morgan Chase, which until recently was considered the best big bank, was embarrassed by a scathing Senate report on its $6.2 billion “London whale” loss, which involved tactics to evade regulations designed to prevent risk-taking and has reinforced the argument that the big banks are “too big to manage.”
   At least eight federal agencies continued to investi-gate Chase, which is suspected of having been complicit in the notorious Bernie Madoff Ponzi scheme.
   [Chase has paid $16 billion in fines, settlements and other litigation expenses in the last four years alone, which is only a fraction of their income. A mere business expense.]
   The conservative National Review quoted Bank analyst Jaret Seiberg saying, “If Congress was ever given the chance for an up-or-down vote on whether to break up the biggest banks, the big banks would lose every time.”
   On Bill Moyers and Company, former FDIC chair Sheila Bair said:

I think the system’s got incrementally safer, a little bit safer but nothing like the dramatic reforms that we really need to see to tame these large banks and to give us a stable financial system that supports the real economy, not just trading profits of large financial institutions.

   Floyd Norris, the chief financial correspondent for The New York Times wrote:

What evidence is there that playing in these opaque and complicated derivatives markets has helped banks do the job that justifies giving them the benefit of deposit insurance? That job involves the allocation of capital, the maintenance of payment systems and the protection of depositors. Why let banks play in these markets at all?

   Democracy for America, Daily Kos, and US Action launched a campaign to back legislation introduced by Senator Tom Harkin and Congressman Peter DeFazio that would impose a sales tax on financial trading. This proposal, which could bring in needed government revenues and help stabilize financial markets, sent a warning shot across the bow of the big banks.
   The New York Times reported that synthetic collaterized debt obligations (C.D.O.’s), that “were at the heart of the credit crisis more than four years ago…appear to be making a comeback,” which caused concern among those who noticed.
   A Rasmussen public opinion poll found that 50% of the public support breaking up the big banks and only 25% oppose the idea.
   A HuffPost/YouGov poll found that sixty-one percent of respondents said that banks and other financial institutions have become too large and powerful.
   Many Republicans began calling for the GOP to address its identity problem by re-branding itself as a populist party willing to take on the big banks.

What Strategy Might Work Best?

   Massive public pressure will be required to overcome the enormous political power of the big banks, who spend about $100 million a year to protect their interests, more than any other private sector. After the Senate voted down the 2010 SAFE Banking Act to end too-big-to-fail, Donny Shaw found that the 61 Senators who voted against the bill had received, on average, twice as much in campaign contributions compared to Senators who voted for it.
   A number of activist organizations are taking on the financial system. On the local level, campaigns like Occupy Bernal have prevented foreclosures. Switch Your Bank and StrikeDebt have gained some traction.
   In San Francisco, ACCE, ReFund California, and Supervisor Avalos are calling for an investigation of LIBOR fraud by big banks and its impact on city finances.
   In Oakland, a community-based campaign persuaded the Oakland City Council to stop doing business with Goldman Sachs unless that firm agrees to stop charging the city a 5.6 percent interest rate on bond debt.
   And efforts continue to organize alternative currencies and gift economies.
   Nationally, the Home Defenders League, the Campaign for a Fair Settlement, and the Take Back the People's Bank campaign have been pushing for principal reduction for all underwater homeowners and an end to all Fannie-Freddie evictions.
   On April 2, activists in more than a dozen cities across the country delivered more than 330,000 signatures to U.S. Department of Justice offices throughout the country calling on the Obama Administration to reject Eric Holder’s declaration that some financial institutions are too big to jail. Members of MoveOn, Credo Action, Home Defenders League, Campaign for a Fair Settlement, Courage Campaign and others participated in this action in a dozen cities, including Atlanta, Charlotte, Little Rock, Los Angeles, Minneapolis, Philadelphia, Pittsburgh, Sacramento, and St. Louis.
   As shareholders, a coalition of groups including the AFL-CIO, the American Federation of State, County and Municipal Employees, and the Benedictine Sisters of Mount St. Scholastica have been pressuring four of the six biggest banks to break up their operations. Arguing that the megabanks are too-big-to-manage and pointing to the diminished value of their stock as evidence, these shareholders have presented proposals for shareholder votes directing executives to explore splitting up their operations. (Local activists might build on that approach by calling on local governments and retirement boards to stop doing business with big banks that engage in both commercial and "investment" banking.)
   Americans for Financial Reform is a broad coalition that lobbies on legislative and regulatory issues.
   Senator Russ Feingold ‘s Progressives United Political Action Committee posted an End “Too Big to Fail” Petition.
   National People’s Action has affirmed that new laws should be put in place that minimize the risk of the “too big to fail.”
   The Public Banking Institute is advocating for local and state public banks like the very successful Bank of North Dakota.
   Rebuild the Dream supports a financial transaction tax, has hada  “Support for Homeowners” project, and has advocated the end of “too big to fail” banks.
   The Reinstate the Glass-Steagall Act Petition on SignOn.org garnered more than 112,000 signatures.
   Robin Hood Tax USA is calling for a march and rally in Washington, DC on April 20 to press for a financial transactions tax.
   These developments are encouraging and could feed into a national movement. But what seems to be lacking so far is grassroots organizing to call for the basic restructuring of our financial system. So long as the big banks retain their current role in the economy, their political clout will be very difficult to overcome. We need a popular force to push for fundamental reform. We need to help assure that any such reforms are meaningful.
   Early this year, Red Jahncke, a business consultant, penned a Bloomberg op-ed titled “Breaking Up Banks Is Easy When They Aren’t Failing.”  In this piece, he argued:

   The first and most obvious proof that we can lies in the 2010 bank-regulation law, the Dodd-Frank Act, which requires America’s too-big-to-fail banks to submit plans -- so-called living wills -- outlining how they can be dismantled if they get into trouble. So these banks have already provided breakup blueprints....
   Second, it has been done before. After the passage of the Glass-Steagall Act of 1933, big banks were divided into separate commercial-banking and investment-banking institutions....
   There is no reason banks couldn’t sell or spin off all of their credit-card operations.... Our megabanks could easily sell loans of all kinds…. Investment securities, including large amounts of U.S. Treasuries and mortgage-backed securities…can be sold with ease to reduce size….
   Branches are usually sold at a profit. For example, last May, HSBC closed the sale of 195 branches with $15 billion in deposits in northern New York state to a small bank, First Niagara Financial Group Inc.

   Our big banks inflict enormous damage on our economy and threaten even greater harm in the future. Without a strict separation between commercial and “investment” banking, taxpayers may be called on again to bail out a big bank in order to prevent an economic collapse. The federal government should provide deposit insurance only to commercial banks.
   But in an online discussion, Wilson Riles, a long-term Oakland-based activist who’s very familiar with both local and national politics, cautioned against a premature, excessive focus on national policy, which can leave activists discouraged and feeling disempowered. Riles commented:

   Significant social and political change…first starts in local circumstances and local communities in struggle…. Local efforts spur the Washington action…. Good changes that happen at local levels can quickly spread to other local communities and build understanding and loyalty. In addition visionary concepts can be honed into practicality and "successful" working examples can be well defined….
   When the change becomes a national question…there is a broad deep understanding and loyalty to the change that inspires the commitment, creativity, and sustained attention necessary to prevent blocking or even accelerate the change….
   The civil rights struggle was all taking place locally, against local ordinances and local bureaucracies, before it became a national issue…. The history of the labor movement is rooted in many local struggles. The tail end of it is the national legislation for a limited workweek, against child labor, and etc…. 

   Riles contrasted this dynamic with the U.S. anti-apartheid movement. He said:

   The actions taken at "colleges and local communities" had minimal impact on those local communities and no lasting effect. Oakland still has its anti-apartheid ordinances on the books but to no effect and with no effect on other human rights issues in Oakland or anywhere else in the world. Oakland did not have to change itself to do that.
   That is not the case with the civil rights struggle or with the labor movement. Those local communities had to change themselves and commitment, and sustainability of that change persists at the local level [and]  is not going to be easily lost or turned away from.

   Leonard Roy Frank, editor of the Random House Quotationary, replied:

   I agree with Wilson Riles. The actions taken by Oakland were ineffective because they entailed no change in the people of Oakland. Meaningful and lasting change in the community begins, or at least happens simultaneously with, change in the attitudes of the people of that community

   Reflecting on these comments, it strikes me that the change that was prompted by the labor and civil rights movements (but not the U.S. anti-apartheid movement) included changes in how people relate to each other. It seems the same can be said about the women's and gay liberation movements. We were, for example, called on to examine our submissiveness toward employers, as well as our racism, sexism, and homophobia.
   Positive personal and social changes on the local level can make a national political movement more sustainable, especially if those projects grow small, horizontal, compassionate communities of individuals who support each other in their personal development. To reform Wall Street we must transform America, including ourselves.
   How might a Wall Street reform movement learn from the labor, civil rights, women’s, and gay movements so we can have a “lasting effect” on our local communities? That is a question we need to address.

About Reform Wall Street

Reform-Wall-Street.org is edited by Wade Hudson with assistance from several colleagues. Our vision: To transform our society into a compassionate community dedicated to the common good of all humanity. Our mission: To assure that banks serve the public interest. Our primary goals:

• Impose a sales tax on financial transactions.
• End “too-big-to-fail” banks.
• Promote public banks, credit unions, and community banks.

Our primary methods:

• Use the website to consolidate, constantly update and share key information and analysis concerning the financial industry.
• Develop an informal network of individuals concerned about this issue.
• Share notifications about action opportunities.
• Support the development of inclusive, member-controlled grassroots activist organizations dedicated to this cause.
• Encourage the growth of small, supportive communities rooted in deep nonviolence whose members support one another in their personal development, community building, and civic engagement.

To be in touch, go to the site at Reform-Wall-Street.org or email wadeATwadehudsonDOTnet.

Power without love is reckless and abusive, and love without power is sentimental and anemic…. An edifice that produces beggars needs restructuring.
Dr. Martin Luther King, Jr.

NOTE: This (monthly) newsletter reviews the news from the month of March. To receive the daily "Big Bank News," follow the blog.