Is the subprime mortgage crisis an example of failed governance?

I have just been perusing the research on the propagation or contagion effects of the US Subprime mortgage crisis. The fact that there is a growing amount of research on this topic e.g. here and here identifies the size of the global impact. Here in Australia all for the big 4 banks have been significantly impacted. So is this a governance issue? I'm sure if one went in to each of these organisations to review their governance procedures, they would appear comprehensive and up to date with "industry best practice". Their lending practices do not (at least visibly) mimic USA subprime lending practices. So why are they suffering so much? Maybe the answer lies in the fact that the governance procedures have not kept pace with the growing complexity of the business environment. Virtually all governance procedures start at the top of an organisation (boards and directors) and work downward. Governance procedures are formulated and approved by the top executive and are then promulgated as compliance rules throughout the organisation. Now lets lift our sights a unit level of analysis higher, from the firm or organisation to the market level. Now we are exposed to the full complexity of the interconnections between firms aided by the increasingly powerful tools of electronic communications. Where is the board of directors for a mortgage market? Who writes the governance rules? Who enforces compliance even if they did exist?

Now using one of my favorite thinking frameworks cynefin to explain what I believe is going on. Virtually all governance schemes are developed at the firm or organisation level. In cynefin terms they are developed with an expectation that the business environment can be analysed and cause and effect determined (simple and complicated regimes). In reality financial institutions are becoming increasingly interdependent in the way they share the world's liquidity pools. When perturbed the effects are not not just simple or complicated, but complex and even chaotic! The traditional forms of governance may just have to be turned on its head, or at least reformed substantially to cater for the subprime mortgage like puturbations in an increasingly networked business environment. Perhaps a little probe, sense and respond? One suspects however that this may not happen too quickly though. At least not until an extra few volumes are added to Sarbanes-Oxley and the next few subprime mortgage like 'mishaps' still occur :)

Brokering can prevent Alzheimers?

Following on from the post on Rob Burt's talk about the characteristics of brokers and their 'tolerance' of ambiguity and their willingness to explore new areas, I recently saw a piece on a breakfast show recently on how one might avoid getting Alzheimers. While many commentators talk about keeping the mind active by undertaking mentally difficult tasks like puzzles, the presenters claimed it is not so much the complexity of the task but how different the task is to what you are used to. In other words if you always do cryptic crossword puzzles and have become quite good at them, then doing one more would exercise the brain less than say, brushing your teeth with your non normal hand.

So I guess Ron can add one more benefit to the list of why one should become a broker bridging structural holes .... it prevents Alzheimers!

UK SNA Conference

I'm now back in Australia after a brief stop in Singapore and a presentation to the local KM society on value networks and partnerships for KM adoption. I attended and presented at the UK SNA conference at Greenwich university. It was great to be able to have personal contact with keynote speakers like Ron Burt (Structural Holes), Mark Everett (UCINET) and Tom Snijders at a smaller event than Sunbelt....where you would have no chance. To their credit they were all generous with their time for people attending the conference. Mark was kind enough to help me out with some analysis I am doing on the Wikipatterns site, looking at social patterns of wiki editors. Ron Burt was his usually entertaining self and we were all keen to hear his latest musings on the balance between brokerage and closure. Of course this tension is no different to the topic of the blog and the topic of my talk at the conference on the tension between top down (closed/compliance) and bottom up (open/brokered/co-operative) governance. Ron has long aurgued the value of being a broker and sustaining brokerage behaviours, which he strongly supports with his empirical research. One new insight for me was that Ron mentioned that those people who demonstrated good brokerage skills were also able to demonsrate excellent closure skills. This sounds confusing to one who saw them coming from different planets i.e. explorers vs six sigma. But it probably also reinforces a view that particularly talented individuals are needed to achieve the appropriate balance between brokerage and closure as it would also be for open vs closed governance mechanisms. It also helps with some other crticisms that Ron mentioned were surfacing in the academic literature around "what is the impact of having a world full of brokers?". My presentation can be found here.

Tetbury in Bloom

Have spent the last few days exploring the Cotswolds in the UK and staying at a lovely market town called Tetbury. Yesterday was judgement day for the "best town" competition. Tetbury had won last year and the community was out in force looking to repeat their success. The town was in great shape.

It is sometimes worth reflecting on where some of our modern 'network' terms arise from....and 'community of practice' is the one that comes to mind. In the netwrok world much is achieved through the pride and passion of those working and living in local communities, working to make their community just that little bit more distinctive than others. Success breeds success. Yes it is sometimes competition as is the case for Tetbury, but it is friendly competition and the end result, despite who the overalll winner is, is a lift in standard for the whole. For those in high governance roles it is worth looking at the "better towns" programs and ask is there no better way to raise community standards than look to ignighting local community passion and pride.

Paris city planners

I'm currently in Paris and today is Bastille day....so a good time to be in this wonderful city. This is only my 3rd visit to the city, the last time being some 16 years ago, but the image that has hit me each time is the foresight of the city planners. The wide boulevards, major green areas and spectacular public buildings are testimony to "top down" governance planning. However one is not enchanted only by these major public artefacts. What also gives the city a unique character is the way that these major 'planned' artefacts are blended with the mess of narrow,somewhat haphazard neighborhoods of the left and right banks, the Latin quarter,Montmartre etc. which give the city its real character.

My point here is that Paris is a good example of the balance of governance from the 'planned' to the 'emergent'. When I think of other major cities in the world like London, New York, Rome, Sydney, Washington, Tokyo etc..there is elements of this blend but in my opinion, none have done it quite as well as Paris.

Evangelists and Connectors? common attributes...

During by recent trip to Varese, Italy to present at the International Forum on Enterprise 2.0 our hosts were kind enough to host a dinner for the speakers to meet physically...many for the first time. The wife of our dinner host commented on the program that three of the speakers had 'titles' of "evangelist"... in my view a somewhat new age funky title that creates an image of passionate promoter who travel broadly preaching the message of their chosen mission. It has both positive connotations in terms of the passion and commitment that it engenders. It also has negative connotations perhaps related to parochialisms and the ability to see alternative perspectives.

The 3 "titled" evangelists, with their comments on the forum are:

Social Computing Evangelist Luis Suarez

http://www.elsua.net/2008/06/23/trip-to-varese-to-present-at-international-enterprise-20-forum/

Wiki Evangelist Stewart Mader

http://www.ikiw.org/2008/07/02/europe-conference-coverage-wiki-intranetblogru-interview/

and Telco 2.0 Evangelist Norman Lewis

In my conversations with the said evangelists, they certainly fitted the image and while parochial to their mission I certainly didn't find that they were ignorant of other perspectives, in fact quite the opposite. Which brings me to the link to 'connectors'.

The day after the forum I was in Matera in the south of Italy to present at the International Forum for Knowledge Asset Dynamics. My presentation was linking social capital to innovation and introducing our 3Es model of innovation. The 3 Es are Exploration, Engagement and Exploitation, with the engagement role seen as the critical 'connector' role connecting exploration networks with exploitation networks. The model resonated well with the audience as I argued that it was not a question of balancing exploration with exploitation, but a matter of managing the process of innovation through engaging, rather than trading off between them. This was totally aligned with the keynote speech of Goran Roos who also argued for innovation as a managed process and not one of serendipity.

So can evangelists play the "engager" role in innovation? One thing is for sure the 'engager' requires the passion and focus of the evangelist. But they also need the respect of the exploitation networks....and perhaps the image of the evangelist might unfortunatley work against this, despite the personal attributes that I have recently observed in Varese.