There’s no “Dummies Guide” for bailout recipients, but at some point there will be a few interesting HBS case studies in how poorly banks handled the public relations aspects of the bailout. I find it amazing at how tone-deaf the leaders at these major financial institutions can be.
The latest response is their shock that the Administration might look to assess financial institutions with a risk-based tax in an effort to recover more of the TARP payments. The banks argue that they’ve repaid their TARP bailout with interest, so why should the government come back for more?
What the banks do not seem to understand is that the bailout was not simply another financial transaction. Without those bailouts, many of these financial institutions would simply not exist. It’s not enough to simply repay the bailout loans then return to your old ways.
Whether or not they truly feel grateful for the lifeline, leaders at these financial institutions should express gratitude. I also think they should put their arrogance in check. I can only speak for myself in saying that destroying tens of billions of dollars in shareholder value would be a humbling experience.
How might the banks have handled the situation better? Here’s a start:
- Show up in Washington when you are beckoned by the President. It’s pretty pathetic when you make auto CEOs on private jets look like the “good guys”.
- Take a serious look at your core business. Have some of the “best and brightest” at your firm focus on how you can return to making small business loans and helping homeowners restructure their mortgage. I’m not suggesting a permanent change in your business, but perhaps diverting a bit of your focus in the short-term away from proprietary trading.
- Take an honest look at your compensation policies to ensure you are rewarding behavior that is in line with long-term shareholder value. Yes, it’s possible you might lose a handful of superstars, but you’ll survive. Remember that the bonuses paid by Lehman and Bear this month will be zero. That could have been you, had the taxpayer not stepped in.
- Stop thinking that you’re a master of the universe. Take a look in the mirror. Remember that you and your peers destroyed more shareholder value than anyone in our history. You built a business driven by factors you barely understood and could not control. Look in the mirror again. Still impressed?
