Joe Bower is the Baker Foundation Professor of Business Administration at Harvard Business School. He is an expert on corporate strategy, organization, and leadership, and has devoted much of his[…]
The financial system has drifted away from the industrial and commercial system, and the leaders of financial institutions have found they can make a lot of money by building organizations of traders.
Question: Why have we seen a dearth of leadership in the past rndecade?
Joe Bower: I don’t know. It really bothers rnme. Basically what’s happened is that the size of capital markets has rnbecome huge, and then trillions of dollars move around the world every rnday in the banking system. The result is that you can really make huge rnsums of money in activities that are fundamentally trading or rnarbitraging and lots of capital in the financial system has gone into rnthose businesses. So, in financial service firms, we see proprietary rntrading, proprietary venture capital and so on, and then you do those rnactivities and you can leverage it because the banks are willing to put rnin large sums of money. The earning on those activities are much more rnattractive than conventional finance. This is why we see the financial rnsystem, in effect, drifting away from the industrial and commercial rnsystem. The industrial and commercial system is much more boring, it rndoesn’t seem to offer the kind or profits, it’s more complicated, than rnfinancial. So, I guess I’m saying that the leaders of great financial rninstitutions have found that they can make a lot of money by building rnorganizations that in effect have traders. And we can be critical of rnthat, but that’s the way the markets have developed.
Recordedrn on April 1, 2010
Joe Bower: I don’t know. It really bothers rnme. Basically what’s happened is that the size of capital markets has rnbecome huge, and then trillions of dollars move around the world every rnday in the banking system. The result is that you can really make huge rnsums of money in activities that are fundamentally trading or rnarbitraging and lots of capital in the financial system has gone into rnthose businesses. So, in financial service firms, we see proprietary rntrading, proprietary venture capital and so on, and then you do those rnactivities and you can leverage it because the banks are willing to put rnin large sums of money. The earning on those activities are much more rnattractive than conventional finance. This is why we see the financial rnsystem, in effect, drifting away from the industrial and commercial rnsystem. The industrial and commercial system is much more boring, it rndoesn’t seem to offer the kind or profits, it’s more complicated, than rnfinancial. So, I guess I’m saying that the leaders of great financial rninstitutions have found that they can make a lot of money by building rnorganizations that in effect have traders. And we can be critical of rnthat, but that’s the way the markets have developed.
Recordedrn on April 1, 2010
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