Management and the Financial Crisis

Sahlman, W. (2009). Management and the financial crisis (We have met the enemy and he is us …). Retrieved March 3, 2010 from: http://www.hbs.edu/research/pdf/10-033.pdf

This is a working paper published by Harvard Business School and was written by HBS professor, William Sahlman. In the paper, Sahlman give a comprehensive description of what he believes led to the financial collapse in the past two years and what he believes should happen to keep such a calamity from happening again. He states that the cause of this crisis can be boiled down to failures of five managerial systems: incentives, relating to risk and reward; control and information technology, referring to limits on behavior; accounting, how managers choose accounting policies; human capital, the management of people; and culture, referring to the values of the people. He further states that there were several economic indicators in the US economy that were pointing toward the crisis in advance of the collapse. These include: slow growth in personal income, zero savings rates, large structural deficits in the federal budget, and increase leverage on the personal, business, and government level. He concludes that making the right changes in the five managerial systems list above will help to shield against future crisis’ such as the current one. This is a very interesting paper that gives a lot of insight to the things that managers and governing board of directors should be looking at as they make decisions in the direction to take their company and how to manage their risk along the way.