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Roger Martin
Dean/Scholar

Roger Martin

Roger Martin is Dean of the Rotman School of Management at the University of Toronto and author, most recently, of The Design of Business. His website is www.rogerlmartin.com

Fire the Bonus-Takers

Many things in life are complicated, and that is especially true of the roots of our current financial crisis. It is very hard to understand the nature and structure of all the sophisticated and complex financial products that sank AIG, Lehman Brothers, Bear Stearns, etc.

But thankfully some things are not so complicated. Bad people don't fix problems: They create problems. Consider for a moment any AIG Financial Products division trader who insisted on being paid a retention bonus to fix the problem that: a) he (excuse the use of male pronoun here, but it's probably accurate) was centrally complicit in producing and b) has cost shareholders and taxpayers hundreds of billions of dollars to (maybe) fix and c) earned himself countless millions of dollars in unjustifiable bonuses. He is, by definition, a bad person. Full stop; no question.

In stark contrast, any good person would have felt so badly about having contributed to the problem that he would have not asked for any type of retention bonus but would rather have worked diligently as long as required to the best of his ability to unravel the mess he had helped to create. It is a simple as that. Bad person = requires retention bonus to stay. Good person = insists on staying to fix the problem.

A key part of any leader's job is to continuously weed the bad people out of their organization. As with freedom, eternal vigilance is the price. Why is it so important? Because bad people operate for their own benefit with little or no regard for the benefit of others. The only way an organization can create value is if its people work together toward the goal of creating value for customers and shareholders. Bad people work directly against this mutual support and joint value creation. And as Nobel Laureate George Akerlof pointed out in his 1970 paper, The Market for Lemons, when there are enough lemons (he used the used car market as his example) in a market, the market gets spoiled for everyone involved. If there are enough bad people in an organization, it is ruined for everyone from the good people inside to its customers outside and its shareholders in behind. So they have to be weeded out - continuously.

Edward Liddy's job was actually easy on this front because he had the perfect marker system for identifying definitively bad people in his organization: the retention bonus deals - which, as he pointed out, had been given out before he arrived. All he needed to do is meet with each holder of a retention bonus deal and ask the individual whether he was willing to: a) tear up his retention bonus agreement; and b) commit to working with him to clean up the AIG Financial Products derivatives mess until finished. After the round of meetings, he should have fired all retention bonus holders who said no to either question -- and suggested that if they wished to, they were free to sue AIG for payment of the retention bonus.

The good news is that he would have fired exclusively bad people and, by elimination, he would have identified who his really good people were. He could have then given more of the task to the really good people who would have carried a bigger piece of the load -- and felt better for having done so. And he would have purged the organization of a pile of useless baggage who while earning their retention bonuses would have undoubtedly (and are undoubtedly) doing more net damage than harm - because that is the only thing bad people know how to do.

And if he was actually a great leader, he would have spent his time motivating, assisting, supporting and leveraging his remaining really good people -- showering them with the affection they deserved. That would have been leadership, not the latest, greatest sniveling rendition of, "What's a poor boy to do?"

By Roger Martin

 |  March 18, 2009; 1:49 PM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
Previous: How AIG Went Blind | Next: Don't Lead the Lynch Mob

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The system is currently so polluted that Rahm Emanual financial sponsors from Chicago are Hedge fund and Geithner mentor was Paulson. They could simply tear up these CDS contracts, bonuses, and do the right thing but the global elites running this scheme hold the public hostage with fear. Aig's $163 MM bonuses are a side show, the real transfers are these CDS payment....

Posted by: jeanluc1 | March 29, 2009 1:57 AM
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Isn't the key the reference to being "centrally complicit?" That means Roger Martin's comments only apply to *guilty* parties, right? Not everyone at AIG's financial products division? Is there any evidence that all of the bonus-takers were somehow culpable? I've seen none.

Because surely there is no ethical obligation to stay and clean up a mess you *didn't* create, when you could move on and seek gainful employment at a company whose prospects are, well, less grim? True enough, those responsible for the crisis at AIG have much to be ashamed of; but I don't see any justification for assuming that includes *every* employee of their FP division.
(I've posted a fair bit on this, at www.businessethicsblog.com)

Posted by: ethicsblogger | March 25, 2009 10:58 PM
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Strong, but encouraging words. Bravo Roger; where have all the leaders gone?

Dave, from Canada

Posted by: davehamilton1 | March 24, 2009 6:21 PM
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