Thursday, 11 March 2010

Four words you never hear: ‘I got it wrong’

Has anyone ever heard a CEO say that the company’s problems are his fault? The general message that gets sent when the company is doing well is that it is a vindication of the management’s strategy. But when things go pear shaped it tends to be blamed on problems like “unforeseeable market factors” or “industry-wide issues”. You don’t tend to hear “we got it wrong” very much.

1 comment:

Guanyu 道 said...

Four words you never hear: ‘I got it wrong’

Alan Hanson
21 February 2010

Has anyone ever heard a CEO say that the company’s problems are his fault? The general message that gets sent when the company is doing well is that it is a vindication of the management’s strategy. But when things go pear shaped it tends to be blamed on problems like “unforeseeable market factors” or “industry-wide issues”. You don’t tend to hear “we got it wrong” very much.

Take this example: Hypothetical Corp finds itself in the middle of a bull market for mortgage securities. It starts buying, trading, repackaging, selling, and so on. Hypothetical Corp’s competitors join in, market accelerates more and more, and the profits come piling in. Eventually the market frenzy reaches tipping point and the value of mortgage securities starts to drop instead of rise. Hypothetical Corp and all of its competitors suffer massive losses, many of them go bankrupt and those that survive do so thanks to assistance from their governments.

Management of Hypothetical Corp, during the good times, will say things like: “Through the commitment to our strategic plan we have created significant shareholder value”. They will not say “Man, this market just keeps on growing and growing, we really can’t believe how lucky we’ve been. We don’t quite believe it, but we don’t want to think too hard about whether this all makes sense - that might just jinx it. So we’re just going to sit back and enjoy the ride. More options anyone?”

And during bad times, “structural issues” or “market forces” or “underlying changes” affecting “the entire industry” are invoked to describe what could otherwise be explained as when something seems too good to be true, well that’s generally because it is.

But bankers did not invent this technique of taking credit for success and distancing themselves from failures. The true inventors of this marketing tool are politicians. Nothing is less convincing than governments taking credit for economic successes and blaming previous governments for economic failures. Economics is one of those challenging areas of study where anything can be explained in the past tense and nothing in the future. To claim credit for your impact on an economy, particularly one that is the plaything of a small number of massive multinational corporations, is hubris at its best.

As I have written before, spend 20 minutes watching business TV and you can see a myriad of expert opinions about what currencies, economies, markets or anything else are going to do next week. Economists, too, are very good at pointing out their hits and explaining away their misses.

This brings me to my own predictions for 2010. I didn’t do this last year, but I have decided that I will make a number of speculative predictions for this year that I will re-visit this time next year in order to impress everyone with my powers of foresight.

So, first, a European or Eastern European government will default on or restructure its debt. Second, oil will hit US$100 again. Third, there will be a merger of two of the world’s top media companies, and fourth, another one of the 50 largest American companies will face collapse.

You too can play this game. Send me your predictions and I’ll print them in my column, maximum of four each, they need to be at least as specific as mine and preferably on the subject of business and economics. Not, a celebrity will commit suicide, for example. And you can’t copy mine either.

At the end of the year Sunday Money will award some sort of prize to whoever makes the best predictions, other than me of course, because all of mine will be right.