Analysis of the American Meltdown Case in Relation to Leadership Skills and Organization Effectiveness
Leadership Skills – The role of leadership in any business environment is very important in ensuring effectiveness of the organization. In business, a leader is important since they define the purpose of the company or organization and lead it to success (Johansen and Kelly, 359). A valuable leader should be one who successfully makes innovations, ensures healthy competition and solves perplexing problems that may be facing the company. However, if a leader does not have the essential leadership skills, then he or she is bound to drive the organization to a downfall. This paper is an analysis of an American company that was affected by economic meltdown of 2008. The analysis will address specific aspects of leadership such as behavior, team processes and organization effectiveness.
Analysis of the economic meltdown of 2008 and how investment firms were affected
The case documented in the frontline website was a video that discussed about one investment bank named Bear Stearns Company. This company acquired huge exposure in 2008 through its dealings on subprime mortgages and other toxic assets (Frontline, 2014). Bear Stearns Company was also involved in trading of stocks and securities and at the same time was also a brokerage firm. In the year 2008, the company experienced one of the biggest failures that were partly caused poor leadership decisions among the country’s top economic experts (Frontline, 2014). This crisis was mainly caused by the housing sector which had invested a lot of money, amounting to trillions of dollars, in toxic mortgages. Most of the housing and investment firms were located on Wall Street including the investment firm, Bear Stearns Company.
During the same time, the company was facing a looming crisis due to the millions of dollars it had invested in bad mortgages and toxic assets. In addition, the company’s stocks had already dropped drastically from 171 dollars per share to a mere 57 dollars (Frontline, 2014). This made the company come into a state of bankruptcy and something had to be done urgently. The Federal Reserve chairperson, Ben Bernanke made a decision that the current crisis had to be taken care of urgently. In order to stabilize the market, Bernanke proposed a merger between Bear Stearns and another commercial bank JP Morgan (Frontline, 2014).
The American government made the decision that they would use thirty billion dollars to cover up the toxic assets and mortgages that Bear Stearns Company had invested heavily. However, this decision was a very dangerous and precarious one that saw many other companies become affected(Frontline, 2014). The economy faced a major meltdown as other investment firms such as Fannie Mac and Freddie Mac became victims of the collapse of giant mortgage companies. In the next few hours, the stock markets crashed completely and credit markets all over the world became frozen. This entire crisis was caused by terrible leadership decisions that were caused by economic leaders and stock market analysts.
Aspects of leadership skills and behavior as portrayed in the economic meltdown video case
Effective leadership is characterized by knowing the right decisions to make on behalf of the company or organization. A successful leader is one who is able to know which decisions can lead to failure and which ones can lead to success (Duygulu and Çıraklar, 391). Leadership entails keeping decisions compatible in light of the needs of the organization. In this case, the economic leaders made decisions that were disastrous to the investment firms and stoke companies located in Wall Street and all over America.
The secretaries of the national treasuries at that time were Henry Paulson and his partner Ben Bernanke. They were responsible for making decisions that were harmful and biased and were not beneficial to the business and economic industry. These leaders decided to bail out Bear Stearns at the expense of the other ones which were later doomed to fail. In addition, these two leaders made the unanimous decision to nationalize three of the county’s largest companies (Frontline, 2014). Moreover, they threatened senior legislators to release seven hundred million dollars or else they would be held responsible for the failing economy. Such leadership behavior can be termed as unacceptable since these two leaders took advantage of their power to manipulate other people.
A good leader must be able to socially integrate and envision the success of his company even in the wake of a looming crisis. He or she should not allow the prevailing situation to become a tempting factor to make him make an impromptu decision on behalf of the company (Duygulu and Çıraklar, 391). Leadership is much more than just a mere function and requires several positive traits such as competent behavior, self-sacrifice, integrity and performance oriented. These skills are crucial in ensuring that the organization runs effectively and that each member of the team is able to fulfill their obligations (Duygulu and Çıraklar, 391). When these traits are demonstrated and portrayed the daily business scenario, then success is bound to follow.
An efficient leader is one who is able to create a following that will listen and emulate them without any obligation at all. In this case, there was an economic meltdown that began by affecting the housing industry where people who had taken mortgages were at the highest risk. After rumors were released into the public that even investment firms and banks would be affected next, people decided to withdraw their stock shares from whichever companies they had invested (Frontline, 2014).
The leaders of the banks and investment firms had made wrong decisions that resulted in the collapse of their businesses. These leaders went ahead to make investment decisions that they knew would seriously affect the performance of the business. It is true to state that these leaders did not have the sufficient personal competence or attributes to make wise decisions on behalf of the company. The style of leadership must match the expectations and number of followers (Johansen and Kelly, 361). This means that leadership is not only a function of the leader but also of the people who are being led.
The economic leaders, bank managers and heads of the investment firms were responsible of leading a very large number of people (Johansen and Kelly, 361). This people looked up to them to make informed decisions that would be profitable and beneficial at the same time. It is dangerous when a leader does not put into consideration the plight of the people that he is leading. It is important that leaders should prioritize the concerns of the greater public before they make the final decision (Johansen and Kelly, 361).
The decision that was made by the top economist of the country Paul Krugman was responsible for the destruction of the entire country (Frontline, 2014). The decision that he made was an utter nightmare that any economic or policy maker could not agree to. The leadership skills and behaviors discussed in the documentary were directly related to the effectiveness of the organizations that were affected. Organizational effectiveness is very crucial to the success of the economy of every country or state. This term is used to refer to the strategies and initiatives that promote and encourage the company to realize its full potential. Organizational effectiveness ensures that the company or organization is able to make positive and lasting contributions that primarily target the development of the business (Hirsova et al, 102). Such effectiveness can only be achieved when the overall leaders are strong willed, hardworking and uphold a high level of integrity. To create organization effectiveness, business leaders are advised to focus on engaging and aligning other people into forming a workable team (Hirsova et al, 102). Each person in the company performs a unique role in ensuring that the company achieves its ultimate goal. Therefore, it is the duty of the leader to unite and cluster the employees into strong teams that will deliver success on behalf of the company (Schaubroeck, 1053).
The people’s management systems, their structure and capability must be included in the efforts of ensuring that effectiveness is achieved by the organization. The leaders of Bear Stearns Company did not exhibit any strategic planning in ensuring that the company did not run at a loss. Instead, these leaders chose to invest in a risky business venture that led to serious and damaging consequences. The company invested in mortgage and housing that later became toxic assets to them. In order for the company to be rescued from this hole, the leaders and top managers accepted the offer that the commercial bank JPMorgan was proposing for them. The latter company proposed to merge with them so as to lift them up from the imminent status of bankruptcy that as staring them in the face. Such a decision could be termed as being selfish and imprudent since these leaders were only concerned with what would happen to their lives in case the companies collapsed (Hirsova et al, 102).
These leaders did not put into consideration or think about the consequences that would follow after they made such a hasty decision. The merger of these two companies happened at the expense of the nation’s economy since it required additional funding from the treasury. A leader who has been chosen to serve at the national level is supposed to exhibit strong and robust behavior that is worth emulation since many people look up to him (Hirsova et al, 102). In addition, such leaders are expected to be completely selfless and serve the interest of the people to their complete satisfaction. The frontline documentary was able to show that the leaders in this case were selfish and made hurried decisions that were not beneficial for the company and country’s future at large. They did not exhibit any positive aspects of leadership such as being steady decision makers. Instead, they fall prey to the pressures of the failing company performance that was followed by a much larger disaster of economic meltdown.
These leaders should consider employing some modifications in their leadership skills and behavior that can help them in correcting the mistakes that they had already committed. First, these leaders should try to encompass the leadership qualities that are crucial for every person with the mandate to lead (Hirsova et al, 102). They should realize that being a good leader involves having high integrity, being hardworking and able to make informed decisions. A good leader is also one who studies the prevailing situation whenever a problem arises and sits down to plan the next forward move to make. Furthermore, effective leadership is one where the leader is able to incorporate the needs of employers and members of the organization so that everybody’s needs are met (Hirsova et al, 102).
In conclusion, the frontline documentary was able to highlight the dangers of what can occur when leadership is not effective. This documentary showed the case of what happened when economic and investment leaders made disastrous decisions when they were faced by an economic meltdown. The leaders of Bear Stearns Company decided to merge with JP Morgan Company even when they knew that such a move was terribly wrong. In the end, this decision resulted in a financial crisis where companies collapsed and others became bankrupt. To date, people still refer to this case study in order to learn useful tips on leadership and organizational effectiveness.
Works Cited
Johansen, Morgen, and Kelly LeRoux. “Managerial Networking In Nonprofit Organizations: The Impact Of Networking On Organizational And Advocacy Effectiveness.” Public Administration Review 73.2 (2013): 355-363. Business Leadership Skills Source Complete
Schaubroeck, John M., “Embedding Ethical Leadership Skills Within And Across Organization Levels.” Academy Of Management Journal 55.5 (2012): 1053-1078 Business Source Complete
Duygulu, Ethem, and Nurcan Çıraklar. “Effects Of Leadership Roles On Team Effectiveness Leadership Skills.” Ege Academic Review 9.2 (2009): 389-400
Hirsova, M. Zelena, V., Vachova, L., & Novak, M. (2013) Effective Leadership Skills – can Soft Skills Contribute to the Effectiveness of an Organization? Proceedings of the European Conference on Management, Leadership & Governance, 100-104
Frontline (2014) The Deal to Save Bear Stearns
