Money by Match Financial
"Bank of America allegedly used dirty tactics to lead homeowners into foreclosures and in-house loan modifications, reaping massive profits for the bank's bottom-line."
Those who did a good job of this were paid bonuses. Those who didn't were fired.
The old saying, "If you can't measure it, you can't manage it," came to mind as I read that excerpt from Thom Hartmann's article about Bank of America's latest scandal on alternet.org.
J. Edwards Deming had the most powerful effect on Japan's productivity boom by teaching companies and employees to measure in order to manage the manufacturing process.
Although he was a hero in Japan, until his later years, he was mostly unknown in America, where much of his work was turned on its head: Like in the Bank of America case mentioned above.
Let me explain. The proper use of metrics is to measure and manage actual performance, not to drive it. But if you drive it and reward it with money or punish it with negative consequences, you'll always get the quotas you set.
In another life, I consulted to a financial institution whose name shall go unmentioned. The management style was one of fear and intimidation. My role was to assist with a change in that style. They went out of business before we could change the style.
Why? Because instead of using measurements to tell us how the organization was actually performing, they were using them to reward and punish performance. Their devices were exactly the same as Bank of America's today. I.e., use dirty tactics to get borrowers into new contracts that raised their debt load at higher interest rates.
Here's an example, they were having trouble with delinquencies. So instead of measuring and managing the system that caused the delinquencies, they set quotas for lower delinquencies and threatened to punish employees if they weren't reached.
The employees' answer? Bring in a delinquent borrower. Loan them more money. Report the old loan as a new loan with a higher interest rate. Delinquencies dropped and dropped and dropped. Previously delinquent customers walked out with more money in their pockets and no intention to pay more responsibly. The entire portfolio was sold for pennies on the dollar.
This is not new news. The Sears Auto service scandal in the 1960's was used as a case study in B school for years. In it Sears added commissions to the auto service writers' pay as an incentive. So far, so good.
But then they set sales quotas to drive performance. Guess what? The employees fraudulently wrote enough unnecessary contracts to met the quotas. "Sears agreed to a multimillion-dollar settlement with the state of California and the 41 other states that had filed similar charges."
So I know why corporations do these things. But what is it in otherwise honest human beings that allows them to cheat fellow human beings on behalf of their employers?
From dailyfinance.com by Eamon Murphy, "The mere thought of money can trigger a subconscious mindset that predisposes people towards unethical actions, according to recent research by professors at Harvard and the University of Utah."
So in Mr. Murphy's words, "Is Money Morality's Kryptonite?" I think so.
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