The S& P saga rumbles on. Having been hammered by the US Securities and Exchange Commission (SEC) in January , S&P has received a knock-out blow, and a $1.375 billion fine, from the US Department of Justice and 20 State governments . And in what might the first of many private actions, S&P also reached a separate $125 million settlement with the huge pension fund California Public Employees’ Retirement System (CALPERS) .
What has received little publicity, however, are the implications of the S&P settlement with regard to Corporate Governance, in general, and Codes of Conduct in particular.
In January, the US Securities and Exchange Commission (SEC) announced that Standard & Poor’s Ratings Services (S&P) had agreed to pay almost $80 million to the SEC and other regulatory agencies for a series of federal securities law violations involving “fraudulent misconduct in its ratings of certain commercial mortgage-backed securities (CMBS)” . S&P was also banned for one year from issuing ratings in the commercial bond market.
A recent research report  suggests that an ethnically diverse group is better at making decisions than a group that are all alike. These results build on other studies that show that diverse groups in general are better at making decisions . Irving Janis, who first identified the concept , argues that ‘homogeneity’ is one of the key prerequisites for Groupthink, which is a bad outcome. So all we have to do to prevent Groupthink is to insist on diversity, especially at the Board level?
Whoa, hold on, it is not as easy as that! It turns out that it doesn’t come down to ‘diversity’ per se but ‘Trust’.
A recent article in the Wall Street Journal (WSJ) was headlined “How You Make Decisions Says a Lot about How Happy You Are”. The journalist then asked the question, “Are you a ‘Maximizer’ or a ‘Satisficer’”? She then reported that ‘Satisficers’ are happier.
But what does this mean for business decision-making, if anything?
In July 2104, the recently divorced Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) came together once more to produce a Joint Consultation Paper entitled ‘Strengthening accountability in banking: a new regulatory framework for individuals’ . Following the scandals of the GFC, LIBOR and PPI, the regulators believe that holding “individuals to account is a key component of effective regulation”. The regulators pointed out that their extensive proposals were intended to “create a new framework to encourage individuals to take greater responsibility for their actions, and will make it easier for both firms and regulators to hold individuals to account”.
The key words throughout the consultation paper are ‘individual’, ‘responsibility’ and ‘accountability’.
The 2008 HBOS Rights Issue
In April 2008, HBOS was on life support when, in a last throw of the dice, the Board decided to launch a rights issue to raise some £4 billion in capital. This was a spectacularly ‘bad’ decision, not because the issue was a complete flop with just over an 8% take-up, but because the prospectus that the Board approved was to put it mildly a ‘work of [half] fiction’, particularly as regards the level of provisions for credit defaults.
The Centre for Risk, Banking and Financial Services at the Nottingham University Business School has obtained funding from the Economic and Social Research Council (ESRC) to run a series of seminars on People Risk.
The next seminar in the series is on 8th October 2014 at Glasgow Caledonian University , on the topic of “the challenges for research and practice in ‘people risk’ management within the domains of aviation and the health sector”.
What is Groupthink?
Groupthink is one of the most widely-used but least-understood terms in Business . We all know that Groupthink refers to the tendency of a group to coalesce around a common position, for example a Board of directors on a corporate strategy or senior management on a cost-cutting program. It is what groups do after all, otherwise they will break up in conflict.