International Monetary Fund (IMF) chief Christine Lagarde has penned a blog to commemorate the 10th anniversary of the collapse of Lehman Bros: a key flashpoint at the dawn of the global financial crisis. [1]

While Lagarde acknowledges the positive developments that have occurred in the time since Lehman’s failure, she points out that other areas have been too slow to change. “Too many banks, especially in Europe, remain weak,” she writes. “Bank capital should probably go up further. ‘Too-big-to-fail’ remains a problem as banks grow in size and complexity.”

Of greatest concern, though, she notes: “There is one other important area that has not changed much – the area of culture, values, and ethics. As I have noted before, the financial sector still puts profit now over long-range prudence, short-termism over sustainability. Just think of the many financial scandals since Lehman.

“Ethics is not only important for its own sake, but because ethical lapses have clear economic consequences. Good regulation and supervision can do a lot, but they cannot do everything. They must be complemented by reform within financial institutions.”

As such, she argues, “a key ingredient of reform would be more female leadership in finance. I say this for two reasons. First, greater diversity always sharpens thinking, reducing the potential for groupthink. Second, this diversity also leads to more prudence, with less of the reckless decision-making that provoked the crisis.

“Our own research bears this out: a higher share of women on the boards of banks and financial supervision agencies is associated with greater stability. As I have said many times, if it had been Lehman Sisters rather than Lehman Brothers, the world might well look a lot different today.”

Is Lagarde on the money here with her implicit assessment of the male impulse towards risk?

The Institute of Leadership & Management's head of research, policy and standards Kate Cooper says: “Dr Meredith Belbin, who devised the famous Team Roles model, did some interesting research on this topic at Henley. Essentially, he identified people’s preferred team roles, and then manipulated teams to test out some of his theories. One experiment he did was to round up a clutch of individuals who landed in his ‘Shaper’ category – typified by traits of energy, drive and leadership – and put them all in the same team. And they promptly set fire to the other group’s papers.

Cooper explains: “the team assembled from those particular subjects was characterised by a rather drastic shortfall of morality. So, if you have one person coming up with a relatively extreme, immoral, unethical idea, and then you have a set of individuals around that person buying into it, then the type of groupthink Lagarde refers to is going to rear its head. Diversity means checks and balances. It means different viewpoints. It means looking at problems from a range of different angles. And it means that you’re all much less likely to leap on an idea without due consideration and process.”

She adds: “whether or not women are more cautious than men is a matter for neuroscientists, and I’m sure you will find plenty who will argue both for and against that notion. Whether testosterone make you more risk-taking, or oestrogen more risk-averse – who knows? But what we can say is that a diverse way of looking at the world will give you a more informed and rounded platform from which to make these sorts of decisions. So had Lehman assembled a more diverse team at the top, things could have been very different.”

For further thoughts on evaluating risk, check out these learning resources from the Institute

Source ref: [1]

Image of Christine Lagarde courtesy of Alexandros Michailidis, via Shutterstock