In a keynote address at the Fall 2008 CLO Symposium in Coronado, Calif., last week, former Caterpillar University President David Vance declared the current turmoil in the financial markets holds a few important lessons for learning leaders.
Vance, who holds a degree in economics from Notre Dame, began his speech with an explanation of how dire the economic situation actually was.
“The financial markets failed one week ago,” he said. “Firms could not sell commercial paper. [If that had continued,] firms could not make payroll or pay suppliers. That’s how close we came to a financial meltdown.”
According to Vance, the immediate effect of all this on organizational learning functions likely will be stagnant or decreasing budgets. Consequently, learning executives should plan for lean times.
However, the long-term impact of all of this is — or should be — the emergence of three lessons for learning and business leaders. These include:
1. People and organizations get what they incent for. Increasing the number of homeowners in the United States was a priority for political and business leaders. Legislation was passed to promote it, and corporate compensation packages were tied to it. Vance said this wasn’t a bad goal per se, but maintained that everyone rushed into it without thinking about possible consequences.
Lesson: Examine which behaviors your organization is encouraging through rewards and incentives. Are you motivating employees to do things that might seem like a good idea now, but could be a problem later?
2. Mental models are usually flawed in some way. Industry experts claimed housing prices might fall and foreclosures might rise in certain local markets, but that the value of homes would never decline in a national aggregate. Vance said they more or less based this on the fact that it had not happened since the 1930s, which obviously was based on flawed logic. (Just because something hasn’t occurred in a really long time doesn’t mean it won’t take place eventually.)
Lesson: Challenge the conventional wisdom. Listen to contrarians, even if you don’t agree with them. Consider what questions aren’t being asked, and ask them. Think critically.
3. Human nature is powerful, and people often are more optimistic than they should be. One of the great tragedies of this meltdown is that so many low-income and middle-class families got into subprime mortgages either without knowing the details or rationalizing the deals with predictions that their earning power would increase dramatically.
They either didn’t fully understand that payments would go up, or they expected to get raises or higher-paying jobs. When a critical mass started to default on these mortgages, the whole financial system began to unravel.
Lesson: View situations as objectively as possible. Take worst-case scenarios into account. Think about probabilities and alternative outcomes.
Vance said learning executives should apply these lessons to what they do and incorporate them into leadership development programs to help organizational leaders learn from these mistakes and avoid making similar ones in the future.
He added that the proposed $700 billion government bailout of the financial sector had a silver lining.
“I want you to consider this $700 billion as experiential learning. Use this crisis as a teachable moment.”