Chase Bank's collapse was imminent

In Malcom Gladwell’s ‘Tipping Point’, he talks about the juncture when a concept stops being an idea and gains enough traction to become an epidemic.

He likens it to the speed with which a single person can spread the flu, creating an endemic.

Over the past week, we got to experience a tipping point of sorts. In a move that has become characteristic of governance failure, we saw a scenario go from bad to catastrophic in a matter of hours, compounded by the treachery that we have, sadly, become accustomed to.

I am not one to kick people while they are down. And regardless of not having been the happiest client of Chase Bank, the failure of the institution has affected many more lives and livelihoods than the executives who brought the institution to its knees.

Much has been said regarding the state of the banking industry, the world over. Many of us, especially those who are no longer employed have a hate relationship with banks, having been disappointed more times than we care to talk about.

Just a year ago I wrote about the bane of our existence, ‘our’ referring to those of us who gave up our pay slips in search of the more difficult, uncertain life of entrepreneurship.

Your local financial institution, which hitherto relentlessly pursued you to take up their innumerable products suddenly treats you like a persona non grata, forget the goodwill that you think you have amassed over the years of keeping your affairs in order and obligations up to date.

Anyway, back to the tipping point. In a show of just how powerful communication has become, social media and private conversation forums saw an unprecedented speed in sharing of information, some of it true and some of it light on facts.

Contrary to the allegory being peddled that social media caused a run on the bank, or that as the institution tried to imply; that its losses were the reason for receivership, these are the kind of untruths that make it convenient for entities and their executives not to accept responsibility for unethical conduct, instead blaming factors outside their control.

And herein lie the lessons for businesses operating in the 21st century. One, assume that news is going to gain traction in epic proportions. In fact, assume bad news will spread faster and take of a life of its own faster than you can contain it.

Any intelligent public relations machine could have predicted the kind of chaos that would ensue, have we not been watching the effect that social media has had on brands in the last few months?

And while you cannot plug all the negative publicity your firm receives, making every conceivable effort to get ahead of its release is better than assuming it will pass by ignored, then giving us obscure answers when difficult questions start to surface.

For financial services firms, it is important to appreciate that what you sell is not cheap credit or safekeeping of funds. Your article of trade is trust; pure and simple.

The instant there is an allusion towards actions that are anything short of ethical by the clients who have entrusted you with a fiduciary responsibility, the dominos begin to fall.

No, it was not social media that caused the stampede. It was the deliberate and deceptive actions of the insiders, followed by cover ups.

Thank our lucky stars for social media because we might still be sitting ducks, wrapped up in an illusory sense of security in our banking system. Eventually, the chips would have fallen and in a much larger magnitude, no doubt about it.

Two, assume that your clients, and the general public are smarter than you think.

Avoid the temptation to hide under fine print and technical terms, even those you mistakenly think are not universally understood.

Yes, contrary to what you think, we know what unqualified and qualified opinions mean as well as the definition (or not) of a firm as a going concern.

On the upside, this means that companies that issue financial statements and prospectus are unlikely to get away with a mere perfunctory glance.

Maybe now we will actually start to pay more attention to controls, risk management, governance and the roles that boards play in upholding and enforcing the firm’s mandate.

Lastly, I hope that we now realize that in the words of Nassim Taleb, “Most people are skeptical about the wrong things and gullible about the wrong things”.

Just because individuals appear charismatic, are lauded by their peers and awarded accolades for perceived aptitudes does not make them scrupulous or honorable.

We need to stop idolizing people based on their perceived standing in society and start to create mechanisms that reduce our reliance on perception. And herein lays the enhanced role of regulatory authorities.

The recent failures emanate from an entrenched negligence on the part of the various industry watchdogs. If we do not want a financial crisis on our hands, our new buzzwords have to be transparency and accountability.