Professor Zahir Irani: Have we quite finished beating up the bankers?

Professor Irani is the head of Brunel Business School, Brunel University
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The Independent Online

I am in no way condoning the actions of bankers and the mess they helped to get us into as a nation. However, as an academic teaching right from wrong in the business world, I think we need to ensure that we present a realistic picture of what happened and not one that is blessed with the benefit of hindsight.

This is especially crucial when teaching our MBA students. We have quite rightly responded to things that have gone wrong by introducing aspects of corporate social responsibility and ethical business practice into our curriculum.

But, at the heart of the current global crisis lies greed – everyone's greed and not just that of the bankers. So, while I hear time and time again the anger the nation directs towards the fat-cat bankers and their bonuses, I also remember friends, colleagues and even our part-time MBA students telling me about the meteoric rise in value of their share portfolios, rises in pension-fund values and escalating house prices.

We appear to have forgotten the good old days and now only remember the bad ones. Clearly, business schools need to make sure that they present the whole story within their curriculum and not a snapshot in time (often the bad times) that is driven by emotion and individual financial circumstances.

Banks and bankers are risk-takers. The problem is that they were caught out and took too many risks, which created and enforced a culture of accumulated risk-taking against a backdrop of poor City regulation. This was presented as a sustainable boom, and one in which the whole nation shared in the glory and the benefits.

Clearly, the highs of the economy were never going to last and would eventually collapse, as we have recently seen, with an almighty bang. It does seem to be unfortunate, however, that we now have selective memory and feel in no way complicit for the crash that happened.

We need to ensure that we reflect deeply on the past with our MBA students, and present the whole story, warts and all, of how we got into this mess, even if it means sharing some of the blame. What role should business schools play in preventing a recurrence of past failings? I suggest that leading schools concentrate on the following.

First, they need to have savvy staff. How many finance and accounting business school faculty actually know how banks operate and were aware that US banking practices changed during the past decade from an originate-and-hold model to an originate-and-distribute model? Do they know what role this played in contributing towards the financial crisis? I suspect only a handful of academics were aware of this fundamental change.

Second, we must promote standards and regulation. Business schools need to be independent custodians of standards, especially among young and naive students. We have all witnessed a deterioration of lending standards, in part supported by the Government reducing regulation in favour of reward. In the USA, government-sponsored enterprises such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) encouraged borrowers who could not readily afford to make substantial deposits or who had questionable credit histories. This raises the question of what constitutes ethical business practice.

Third, we require joined-up thinking. There is an obsession, in the City, with the short term, which in a declining market simply promotes uncertainty and panic – the evidence being manifested in house prices plummeting, the return of negative equity and the collapse of mortgage-backed securities. Business schools with their savvy staff should better understand market reactions (against a backdrop of improved standards and regulation) and the impact of cause and effect.

Business schools also need now to be making better use of techniques such as scenario screening and planning with our next generation of bankers. This would enable them to better understand and maybe even predict the impact of the next financial crisis, or to come up with innovative solutions to help dig us out of our current financial black hole.

Unless we face up to the whole truth, our future business leaders might repeat the past as either instigators or consumers of the moment. Either way, we make our own future.

Professor Irani is the head of Brunel Business School, Brunel University

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