How does your organization review and achieve accountability for management’s actions? For fiscal accountability? For transparency in your operations? For protection of stakeholder and stockholder interests?

If every financial institution in the U.S. had been forced to answer these Baldrige questions honestly and accurately in the past few years, and if regulators had been verifying their responses, the financial crisis and the bailout it triggered could have been averted. Either they would have had processes in place to deliver ethical and effective leadership or their irresponsible practices would have been exposed.

“I think the last two years have revealed the single largest failure of senior management in the financial sector, and of the board system in American history,” wrote Bo Cutter in new deal 2.0 (November 24, 2009). Cutter has been a managing director of Warburg Pincus, a global private equity firm, and led President Obama’s Office of Management and Budget transition team. Considering the savings and loan crisis in the 1980s and 1990s and the scandals involving Enron and Worldcomm earlier this decade, one could argue that senior management and boards of directors in the financial sector have been failing miserably for thirty years. One could also make the case that the government agencies responsible for overseeing these financial institutions failed miserably, too.

This systemic failure cannot be fixed by feeding the system, as the bailout does, or by chastising the senior leaders no matter how good that feels. The system has to change. It didn’t change significantly after the savings and loan debacle. It didn’t change much after Enron and Worldcomm. If it doesn’t change in response to today’s financial crisis, the failures will continue.

The Baldrige model provides guidance on how to address these fundamental, systemic issues: Ask and answer the questions. Verify the responses. Embed the Baldrige core value of visionary leadership, which states that “senior leaders should serve as role models through their ethical behavior” and “should be responsible to your organization’s governance body for their actions and performance.”

That doesn’t mean they get bonuses during a bailout. Governance has to be better than that. As Cutter writes, “I think I am correct in saying that there was not a single independent director in America who stood up on this issue. I do not understand why every board of every institution that failed was not asked to resign immediately.”

They weren’t asked to resign because the system hasn’t changed. It’s business as usual even in the most unusual and trying times. As long as that system remains intact, the misery it produces will continue.

To find out more about effective leadership, read:

• The Priorities of Leadership
• Excessive Executive Compensation Derails Excellence
• Why Organizations Fail
• 10 Critical Questions: Senior Leadership
• 4 Parts of True Sustainability

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