Documentary- Inside Job
Documentary- Inside Job
TheFunctions of Management
Oneof the situations in the film that demonstrates the four functions ofmanagement is when the largest commercial banks, which form thefinancial services roundtable were involved in unethical bankingpractices. The four functions of management were evident in negativeways in the financial firms since the beginning of the deregulation(18: 54). First, in planning, individuals set up objectives and thenestablish the course of action that is required to achieve theobjectives (Carroll & Gillen, 1987). In planning the managershave to be cognizant of the various existing environmental conditionswhich the organizations face and then forecast the future conditions.Reviewing the issue of the members of financial services roundtablein New York, it was found that most of the large financial companieswere laundering money, defrauding the customers and cooking thebooks. The management can only involve itself in this kind ofmalpractices when they are quite aware of the environment. Themanagement knows that they are not performing exceptionally. Further,the management also is aware that any real revelation of theirperformance may lead to loss of customers and trust in the bank.Therefore, they have to strive to maintain the company’s image. Bydeciding on the course of action to take, they are good decisionmakers, albeit giving wrong advise. The management is aware that anydecision that they make have likely effects. The management of thebanks scanned the environment, and they were cognizant that the bankswere in their turmoil. They considered the issues that were facingthe customers and their competitors. Owing to this, the largefinancial banks forecasted the performance and took the negativeaction of cooking their books.
Organizingis also a critical role in the management. Organizing entails thedevelopment of organizational structure (Carroll & Gillen, 1987).The process also involves allocation of the various human resourcesto ensure set objectives are achieved. For the large financialcompanies to do money laundering, to cook books and defraud thecustomers, they have to be well organized. By being organized, thereis defined structure within these organizations where the effort iscoordinated (Mintzberg, 1973). The structure could be in existence inthe organizations, but with conditions or instructions to bemanipulative of the system. It is within the structure thatorganizational decisions are made. At this point, the jobs ofindividuals are defined. An accountant no longer does the job asdefined in his or her designation rather involves themselves inillegal activities of cooking books. The management, on the otherhand, is not in any way interested in bringing the culprits of theunethical tendencies, rather, the management works hard to defendthem. In essence, there are changes in job designs of individuals.
Forthe rest of the staff to support the unscrupulous tendencies andunethical banking standards they are influenced. Leading entails theinfluence of others to achieve certain defined organizationalobjectives (Carroll & Gillen, 1987). For the fraud activities totake place as well as books to be cooked for some time withoutnotice, there is effective leading in the process. Effective leadingin this aspect then entails the manager motivating the subordinates.Upon the subordinates being motivated, they get to be enthusiasticabout the process and do all that it takes to attain the setorganizational objectives (Mintzberg, 1973).
Indoing control, the performance is done in a manner that does notdeviate from the set standards. In this regards, the set standardsappear to be negative in form (Mintzberg, 1973). For the companies toensure that they carry on with their activities unnoticed, certainstandards have been put in place to define the performance. Thestandards that allow them to cook the books, in essence, allows forthe comparison of the actual performance against the standards set(Carroll & Gillen, 1987). The performance standards in most casesare in monetary terms, and they include revenue, costs, or profits.The management of the financial banks, in essence, defined the costs,revenues, and profits to be put in the books of accounts henceresulting in the cooking of books. The management compared the actualperformance against the standards and then manipulated the books asthey deem fit.
Diversityof the Crisis
Theeffects of the financial crisis were not just limited to the UnitedStates. In fact, the finance industry being diverse in nature, theeffects spanned across many of the global economies (Reinhart &Rogoff, 2008). This is clearly explained by the Finance Minister ofFrance, Christie Lagarde when she talks of Tsunami. The effects wereeven clear to the members of G7. Later, the Lehman Brothers ran outof cash and hence effects on the world financial system. Notably, theimpacts were wide and another bank affected was Merrill Lynch, whichwas acquired by Bank of America. The affects were wide and the LehmanBrothers had to cease their operations in British as required by UKlaws (Reinhart & Rogoff, 2008). The effects were also seen in theCommercial Paper segments where most companies depend on for theoperations like payroll. The effects were massive, and people couldnot borrow money. Even with the bailout in place, little changes wereseen. The unemployment rates rose quickly in both US and Europe andthe recession accelerated. The effects were major, and they spreadglobally hence affecting every other economy. The whole world waseventually said to be going down at the same rate and at the sametime. Given that the US market was cutting on their spending, morethan 10 million Chinese migrant workers lost their jobs. The growthof Singapore was affected, and it reduced to -9% with the exports ofthe country declining (Reinhart & Rogoff, 2008).
Goingthrough the processes, Ben Bernanke and Frederic Mishkin appears tohave been exposed. It appears that there was little done in terms ofidentification of the problem, which is the first stage indecision-making (Ingram, n.d). At one point, Mishkin admits not toremembering anything. This then is an indication that Bernanke andMishkin were not ready to solve the problems that were facing thefinancial sector. If in their shoes, I would recognize a decision tobe made. Second, it also appears that the two did little to seek forinformation. This is very clear when Mishkin admits that Bernankeonly talked about the crisis in the last minute. It, therefore, seemsthat the duo did little in terms of getting the necessaryinformation. If in their shoes, I would seek to find out the array ofthe causes of the recession.
Uponcarrying out the first two steps, it is prudent that the managementbrainstorm on the solutions (Ingram, n.d). This process allows forhaving a complete comprehension of the problem at hand. Seemingly,little was done to expose the problem, and hence decision-makingprocess affected. As Saaty (2008), the duo did little in regards toseeking for advice and opinions concerning the manner in which toaddress the issue at hand.
Theother critical stage concerns implementation of the plan. However,from the perspective of the duo, there seems to be no plan.Therefore, implementation of non-existence plan was impossible.Notably, this was not the first time that Federal Reserve was beingconfronted by an issue of this magnitude. Nonetheless, this was thefirst time that they were learning from their mistakes as they haddone little previously to learn from their mistakes. This meant thatthe Federal Reserve had no option to switch to other potentialsolutions (Saaty, 2008).
Severalintellectuals were incorporated in advising array of companies.Notably, their self-interests seem to have overridden the interestsof the nation or the company. A case in point is Gleen Hubbard andMishkin. In a paper written by Hubbard and Dudley (Chief economist ofGoldman and Sachs &Co.), the institution is praised. Also, theuse of derivatives are praised in the securitization chain. These twoauthors noted that derivatives had improved the allocation of capitaland risk throughout the economy. Further, Hubbard and Dudley notethat through the derivatives, volatility in the economy had reduced,and recessions were less frequent and milder. Unfortunately, this wasmisinformation to the public. In any case, the duo was executing whatwould pay them at the end of the day. Arising from this, there is aneed for a policy to be put in place to recall the publications ofindividuals who misinform the public. Further, tighter rules need tobe put in place to help monitor the activities of the intellectualsin the corporate world to avoid personal interests overriding theinterests of the country or corporate at large.
Carroll,S. J., & Gillen, D. I. (1987). Are the classical managementfunctions useful in describing managerial work?. Academyof management review,12(1),38-51.
Ingram,D. (n.d). What Are the Steps in the Decision-Making Process of aManager? SmallBusiness.Chron.Retrieved from<http://smallbusiness.chron.com/steps-decisionmaking-process-manager-10601.html>[Accessed on 17/06/2016]
Mintzberg,H. (1973). The nature of managerial work.
Reinhart,C. M., & Rogoff, K. S. (2008). Isthe 2007 US sub-prime financial crisis so different? An internationalhistorical comparison (No.w13761). National Bureau of Economic Research.
Saaty,T. L. (2008). Decision making with the analytic hierarchyprocess.Internationaljournal of services sciences, 1(1),83-98.