Lehman, Merrill Lynch, and Ethics

I can't help woondering—would our crumbling financial giants like Lehman Brothers and Merrill Lynch be in such trouble if they'd followed common-sense ethical principles?

In my award-winning sixth book, Principled Profit: Marketing That Puts People First, I suggest a number of reasons to say no to a sale, focused on core ideas of honesty, integrity, and quality. In other words, successful businesses have standards both for how they behave and for whom they choose to do business with.

So many of the loans coming apart in the subprime crisis didn't meet the basic criteria of quality—there was no assurance that the borrowers had enough resources to pay back the loans.

Yes, these loans provided a path to home ownership for many Americans who could not have otherwise afforded them—a worthy goal. But those ownerships turned out to be temporary, and those forced from their homes are now in worse shape. Perhaps if proper lending criteria had been applied, the market would have responded by lowering inflated home prices—and those who got burned would have had a safer and more secure path to real home ownership, and the financial titans wouldn't be fighting for air.


Oh, and one more question: Why was Bear Stearns considered worthy of a bailout (something I wasn't at all sure was a good idea) but not these latest casualties?

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  • Shel Horowitz

    All three of you make great points (Karl, I like your sense of humor). there is so much good common sense and wisdom out there, yet people let themselves be blindsided by greed.

    I've given companies a tool to help differentiate themselves as ethical: http://www.business-ethics-ple...

  • Allen Laudenslager

    These companies got into the position their in following the advice of the smartest experts they could hire (at unreasonably high salaries). Since we can see where that advice led, perhaps we should rethink our definition of expert.

    All of these companies would have truly benefited from a few less well schooled managers with small business ownership experience. Delivering a product to a local customer teaches the fundamentals of good business much better than any B school could ever do.

    Yes, you may not get some of the more esoteric tools but you get a deep understanding the link between your decisions and the results to your business. Especially the link between short term profit decisions a the long term health of your business.

    All of the problems with these companies were caused by not looking to the health of their business next year and 5 years down the road.

  • Karl Dahlquist

    No, lets bail out the bankers, the flippers, the people that bought SUVs and flat screen televisions with their refis. That is the new American way.

  • David Mullings

    "successful businesses have standards both for how they behave and for whom they choose to do business with."

    Now Lehman is dead, aka not successful. Bears you out.

    As to lending criteria, I would say that if the lenders were forced to keep the risk associated with a loan, like in Europe, they would have had better risk management in place.

    When you can sell the risk to someone else, you have no incentive to care, you just originate loans and sell them off.