Friday, July 27, 2012

Economic Inequality and Management Scholars: The Challenge Awaits

By Dr. Suhaib Riaz (for BEIF).

An interesting sub-theme on “Institutional Work and the Institutionalization of Inequality” was held at this year’s EGOS (European Group for Organizational Studies) conference in Helsinki. The conveners, Tom Lawrence, John Amis and Kamal Munir, brought together scholars interested in various types of inequalities, with a focus on how these inequalities become institutionalized.

Aalto University, Helsinki.
Venue of EGOS conference
The excellent initiative served to highlight the challenges in the field. At the outset, inequality often remains an add-on issue for management scholars, rather than the core of the investigation, per se. Further, while several types of inequalities are looked at, such as social class, emotional capital, and environmental issues, the burning issue of today, economic inequality in society, receives less attention from management scholars. These observations reflect the wider pattern in the literature.

Within current socio-economic systems, given the primacy of economic resources in providing access to most other resources, such as education, status, environmental resources, etc., it is perhaps no surprise that public attention is focused on where the money is.

Economists and philosophers, in contrast to management scholars, have given more thought to the topic. From John Rawl’s focus on primary goods (sometimes including ‘money’), Amartaya Sen’s highlighting of people’s capabilities, Richard Arneson’s push for opportunities, the field has much debate on what should be equalized, within the broad issue of economic inequality.

This challenge for management scholars is also an opportunity.

The aspects of economic inequalities studied by economists have moved more into the social realm that involves deeper understanding of people, their interactions, and society, as opposed to the earlier focus on more objective commodities. Further, the business organization angle, which is perhaps the most important part of this public issue today, is expectedly missing from the debates. Management scholars are already engaged with social and organizational issues, and are thus in a unique position to bridge the gap.

The conversation and the challenge await.

This blog post is cross-posted with the Business and Economic Inequality Forum blog

Wednesday, July 18, 2012

Banking as Theatrical Comedy?

In the wake of one crisis after another, the banking and finance industry has entered the realm of popular culture in various interesting ways. A poster in London for the BBC-origin theatrical comedy, Yes Prime Minister, comments on the fall of Bob Diamond, Barclay's CEO, as part of the ongoing LIBOR scandal. Perhaps there is enough material in there for a full-fledged theatrical comedy on Banking...?

On a more serious note, such representations in popular culture also highlight the desperate need for the banking and finance industry to come up with a "society" strategy...a major re-imagining of their role in society along with related cultural changes...

[Photo/Comment: Suhaib Riaz]

Update: Looks like the comedy idea is already being cashed in on, with Patrick Combs' "Man 1, Bank 0" show: !

Tuesday, July 3, 2012

Numbers Versus Context: How to change the finance industry beyond LIBOR scandal

One of the most relied-upon numbers for the entire financial industry, that impacts loans worth several times the world’s GDP, has been found to be unreliable. Touted as an objective measure of interbank lending rates, LIBOR, is now under investigation for the numerous ways in which it was manipulated for various types of illegal gains. On one hand, bank traders made profits by asking bank submitters to manipulate rates to their advantage; on the other hand, fake lower rates were submitted during crisis times to fool others about the bank’s health.

This is not an isolated incident, and reveals fundamental cultural and ethical problems with the industry as a whole, that my colleagues and I have pointed out earlier. The Financial Times reports that investigations now involve about 20 banks across three continents, and that similar other numbers, such as Tibor (Toyko-based), were targets of attempted manipulation by Citigroup and UBS.

What is the deeper issue here? I would argue this story again raises the issue of what numbers really mean, devoid of proper, detailed context. This problem is specially endemic in the finance industry where numbers are often used to hide, not reveal, the real meaning and context.

The rare media commentator such as Gillian Tett of the Financial Times, does touch upon such issues at times, helped no doubt by her anthropology background:

“Ever since the computing revolution took hold on Wall Street and the City of London in the 1970s, finance has been treated not as an art but a science – and banks have operated as if computer models could not just explain the past but predict the future, too.

Now those “quants” and rocket scientists find themselves at sea. Computer models alone can no longer calculate meaningful probabilities about what will happen next in the eurozone. Instead, what really matters now in places ranging from Finland to Greece are non-quantitative issues…”

The problem is not confined to industry, but also plagues Strategy, and more broadly, Management scholarship. In a field where context should be king, arms length statistical analyses, without due attention to deep context, reign in academic journals.  

Boston College- Venue of Fields Conference
Proper qualitative analysis of the context behind numbers is challenging and time consuming. Fly-by-night management book writers abound, who proclaim the next fad based on some sketchy qualitative data using interviews and conversations. Yet, small islands of rigorous qualitative research do exist. A few weeks ago, at the annual Boston Community Fields Research Conference at Boston College, it was pleasing to see the devotion to deep context research. What still surprises me though, is the limited research of this nature on the finance industry.

Perhaps the most needed scholarship of our times is to take a deep qualitative look at the most important financial industry numbers- to question and understand what they really represent and mean, be it numbers related to complex derivatives, inter-bank loan rates, credit ratings, etc. I would even argue that the industry itself should be part of such transparency efforts, which would be a critical part of fundamentally changing its strained relationship with society. Any takers?