Note to Lloyd Blankfein: Stupidity is the best defenseApril 19, 2010: 11:28 AM ET
Things look pretty blank and far from fine for Lloyd this morning. But buried within the situation is a strategy that may serve him well in the days to come. Ken Lay explored it to some effect. It's called executive ignorance, and anybody who has worked in the upper echelons of corporate life knows it's a very credible defense indeed.
I'm not saying it's true, mind you. Just credible. At least it gives you something to say when people ask you why your firm allegedly authorized the sale of a financial instrument it was betting against.
The rationale goes like this: "The CEO of this company is a very big guy. He's the face of the firm. His genius is to hire brilliant lieutenants and then stand back and let them do their jobs. He doesn't get his fingernails greasy with the small stuff, like investments of several billion dollars. His role is to stand on the battlements and keep his eye on the fields, farms and towns of the domain. If you ask him whether one cow or another is giving milk, he will not know. He did not know. He does not know much of anything, really. His job is not to know. It is to preside. And such he did, with great success. If his subordinates engaged in questionable behavior? This is among those things that it was not his job to know. So he didn't. This shows, in fact, what a great CEO he actually is. In fact, he should win an award instead of being persecuted like this."
This may seem ridiculous. CEOs know everything, right? That's why they make the big bucks. Not so. Theirs is a more mysterious role -- to create the corporate culture in which others may flourish. Or so it goes.
This argument is given added weight by an interesting little flourish in today's report in the New York Times. When it was clear that the housing market was going poof, the ultra-senior viziers who attended the King were found more and more often stalking the mortgage department that suddenly held the key to the entire health of the firm.
The problems first became evident in 2005, and blossomed darkly in 2006. "A few months later," the Times reports, "in February 2007, senior executives began turning up on the trading floor. The message, one former employee said, was clear: management was watching. "They basically said, 'What does this department do? Tell us everything about mortgages,' " this person said."
Think about that for a minute. The firm, widely regarded as the cream of the creamy cream of Wall Street, was already sunk into the mortgage market for an amount that was the equivalent of the GDP of a moderate-sized country. Suddenly, the bottom seemed to be falling out. And it was then -- only then! -- that senior officers appeared in the department and asked to be given a short course in how the business worked.
So Lloyd? I know you're busy, but give it some thought. If your senior guys were so clueless, should you avail yourself of the right to have been the most clueless of all?