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While ERM was not developed to the point that it is today, the elements of information flow and constructive dialogue were the essential distinguishing features between successful firms and those that failed. My book identifies four firms that successfully navigated the crisis: JPMorgan Chase, Goldman Sachs, Wells Fargo, and Toronto Dominion Bank (TD Bank). Each distinguished itself in operational competence and intelligent discipline, but with different approaches. JPMorgan Chase's story is of preparing the company to be strong enough to take advantage of long-term opportunities. Goldman's is of firmwide systems and capacity to react quickly to changes in the environment. Wells Fargo is a company with a strong culture of customer focus and restraint. And TD Bank provides the simple lesson: If you don't understand it, don't invest in it.

Constructive dialogue was built into the cultures of these firms. The first important element was an emphasis on ensuring that information flowed to parts of the organization that needed it. As one JPMorgan Chase executive put it, "Jamie [Dimon] and I like to get the bad news out to where everybody can see it ... to get the dead cat on the table."[1] Goldman Sachs maintained a "culture of overcommunication; multiple formal and informal forums for risk discussions coupled with a constant flow of risk reports."[2] Dan Sparks, formerly head of the Goldman mortgage desk, told FCIC staff that he reported bad news to the firm's top management because "Part of my job was to be sure people I reported to knew what they needed to know."[3] The Wells Fargo Vision and Values Statement emphasizes risk awareness as a part of the company's culture:

We want compliance and risk management to be part of our culture, an extension of our code of ethics. Everyone shapes the risk culture of our company. We encourage all team members to identify and bring risk forward. We should thank them for doing so, not penalize them. Ben Franklin was right: An ounce of prevention is worth a pound of cure.[4]

TD Bank's CEO, Edmund Clark, wanted to hear negative news fast:

I'm constantly saying to people: "Bring forward the bad news; the good news will surface soon enough. What I want to hear about is what's going wrong. Let's deal with it."... It's about no surprises. Any number of problems we've had to deal with could have been solved if the person had only let us know early on In fact [employees] joke that I'm only happy when the world's falling apart and that I'm a total pain when everything is going well.[5]

The second important part of effective constructive dialogue is that managers need to have a forum where they can conduct open and respectful but possibly intense debates about what the information actually means. This part of constructive dialogue has been a feature of well-run banks for a long time. Banks use a credit committee to deliberate about whether to make particular loans. Loan officers bring information about a proposed large loan to the committee. There, under the watchful eye of a senior manager, the loan officer presents the case to make the loan, followed by the underwriting department's presentation about risks that the loan involves. If the dialogue goes well, the result might be a synthesis between the two views. Instead of simply making a yes-or-no decision, the credit committee might decide to ask for more protection, such as an added guarantee or a shorter term, or more collateral, as a way to allow the transaction to go forward. The final result often can be a higher-quality decision than either the loan officer or the underwriter would make by themselves.

  • [1] Shawn Tully, "Jamie Dimon's Swat Team: How J.P. Morgan's CEO and His Crew Are Helping the Big Bank Beat the Credit Crunch," Fortune, September 2, 2008,, accessed February 14, 2013.
  • [2] "Risk Management at Goldman Sachs," February 20, 2007. Materials provided to the Senate Permanent Subcommittee on Investigations.
  • [3] FCIC interview with Dan Sparks, Goldman Sachs, June 16,2010.
  • [4] Available at .pdf.
  • [5] Edmund Clark, "Corporate Transparency and Corporate Accountability – Today's Table Stakes for Senior Executives," remarks to the Executive Women's Alliance Conference, Vancouver, July 12, 2004.
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