Now, Turn to the Future

Published July 26th, 2009

When asked, “Thanks to the government’s rescue of the financial system, many banks and hedge funds are making money again, but this turnaround has caused a backlash among recession-weary Americans. How should these business leaders respond?”

Bill George responds below, as published in the Washington Post (click here to see online).

Now, Turn to the Future

It can only be good news that the U.S. financial system has stabilized to the point where major financial institutions have returned to strong profitability. Of course, the competitive terrain has changed dramatically in the past year as a number of large financial institutions (e.g. Lehman, Bear Sterns, Merrill Lynch) have disappeared, while others like Citi, Bank of America and AIG are severely crippled.

The heads of the healthiest financial institutions like J.P. Morgan and Goldman Sachs (where I serve on the board) need to provide the leadership in working with the U.S. government to put in place necessary changes in regulatory frameworks and capital requirements to ensure that the U.S. does not find itself back in a similar meltdown in the years ahead.

Internally, they need to provide leadership with sound compensation principles like strict pay-for-performance and bonuses paid in restricted stock rather than instant cash in order to ensure that the recent returns to financial health are sustainable over the intermediate and long-term.

Finally, both economists and business leaders should recognize that the return to health of financial institutions has not impacted the growing unemployment and jobs crisis, which is likely to worsen in the coming months. To create new jobs will require a concerted effort on the part of financial institution leaders and government officials to focus more investment funds and incentive in new company formation, support for entrepreneurs, and research and innovation. These moves are vital to the future health of the U.S. economy.