Judging by the worldwide financial crisis and its knock on effect on global and regional markets, it appears that the trust placed in financial organizations to self regulate has been misplaced. The competency and integrity of some financial institutions and their leadership is being questioned. An emerging debate on how such a crisis could have been avoided and what lessons could be learnt to avoid a similar mishap repeating again in future has already started.
Many developed countries are now in recession and every country in the world has been affected, albeit some signs of stabilization of deterioration are emerging. Many countries in the Middle East were able to avoid the first round impact of the crisis. Other countries whose financial systems are more internationally linked have experienced a mild financial shockwave. The sovereign wealth funds and petrodollars have, to some extent, shielded the region's economies. However, the global meltdown, and its knock on effect on world economies, will continue to challenge leaders with fundamental economic issues such as unemployment and food shortages.
The sudden collapse of several multinational financial institutions has not just shaken the financial community to its core, but also sent aftershocks across the world. The fundamental question is how such a mishap could have happened to such well-established, professionally run institutions and how executives failed to predict and possibly avoid this financial disaster. The leaderships of financial institutions have failed to adopt a responsible attitude, and were completely blinded to recognize obvious economic fundamentals.
The oversupply of mortgages to customers has resulted in irresponsible lending practices and loan repackaging decisions. They have literally kept themselves very much disconnected from the real people who lived in very different worlds to theirs. Furthermore, business dynamics incentivized leaders to ignore the basic fundamentals of the industry and encouraged them to realize short-term gains irrespective of risk severity. In other words, risk taking was rewarded and prudence was unfortunately penalized.
Countries throughout the Middle East could respond with expenditure programs that mitigate the impact of the financial and economic crisis, whilst building the foundations for future economic growth in a sustained and inclusive fashion. Self-reliance, confidence in times of stress, in addition to concerted planning and development by governments and the private sector are prerequisites to riding out this crisis.
On reflection, a number of lessons can be learned from the current financial crisis, possibly the most important one being the affirmation of the leading role governments should play in regulating and monitoring the financial services, economy and market, and accepting the interdependency of individual national economies with the world economy at large. Therefore, there is an apparent need for stringent regulations and monitoring tools for the markets and the economy.
The most important thing is to focus on the future and develop appropriate frameworks that guarantee maximum performance in times of crisis, bearing in mind that sometimes opportunities are born from the wombs of crises. Measures undertaken by governments will ensure that countries of the region will emerge from the global financial crisis with minimum damage.
Leaders have to act responsibly to promote constructive behavior to turn a crisis into an opportunity for the betterment of organizations as well as society. During a climate of collective fear, people tend to resort to impulsive buying/selling, and are incapacitated to think logically and creatively. Leaders have the responsibility to instill collective calm, enabling individuals and organizations to make more thoughtful and creative decisions.
People in positions of leadership are fallible and prone to the same undesirable reactions as their followers. However, what makes a great leader is the ability to lead by principle, regulate and control emotions and positively influence people, particularly during crises. What leaders need to focus on now is genuinely building trust through transparency and consistency between words and actions.
There are two types of leader: Leaders that have depth and breadth of experience as well as the confidence to take action and better leaders who are ready and well positioned in advance of crises by preparing themselves, their people and their organization — good leadership is all about foresight and vigilance. Such leaders recognize that to change organizations, the attitude of the individuals working in them must change first. Such a change would consequently lead to a wider change not only in the institutions themselves but also countries at large.
Over the years, the Middle East has demonstrated remarkable abilities in overcoming challenges. Overcoming this crisis is paramount to regional leaders in the short-term. The process could be accelerated by establishing a qualified and professional task force to closely monitor the unfolding global crisis, analyze its impacts on the national economy and subsequently propose action plans to cope with its knock on effects. In the long term, however, there is a need to adopt an institutionalized and strategic approach to predicting and dealing with such crises.
(Yahya Shakweh is a vice president at Advanced Electronics Company, Saudi Arabia. The views expressed in this article are the author's personal opinion. He can be reached on e-mail: [email protected] )
