The Sarbanes Oxley Act was established in response to a bubble that burst – the Enron bubble, which can primarily be attributed to the relationships companies had with their auditing/consulting firms. The end result – companies had to take responsibility for the disclosure of their financial statements, and those that provided false information could potentially face criminal charges. The act was established in 2002. While some aspects of the law, including protections for whistleblowers, have seen their day in court, but up until now, not one CFO, CEO or board member has been brought up on criminal charges, nor fined, nor publically provided with a slap on the wrist – for violating the fundamental requirements of SOX.
When the mortgage lending bubble burst, increase scrutiny on banks and other financial institutions came into play via the Dodd-Frank Act. With the onslaught of investigations by the federal government into improper lending practices and improper ratings of mortgage backed securities that came with this law, many assumed that the most egregious of offender banks would face criminal charges. To date, only one person has gone to jail as a result of these improprieties, and the only reason is because that individual was foolish enough to plead guilty. All other banks and bank employees were let off the hook by paying fines, most of which had little to no impact on the bottom line of the institutions. In exchange for paying the fines, the banks admitted to no guilt, and no further investigations would take place.
Even when the bubbles burst, we seem to do our damnedest to ensure the violators not be penalized for their improprieties. Instead, as a society we basically applaud them for their short term thinking, and then move quickly to the next bubble to get our own, before it suffers its fate. This short term thinking has really become the norm for companies looking to manage supply chain risk as well. Whether it be sustainability of raw materials purchased, the risks associated with supply outages due to natural disasters, or financial collapse of markets or governments, no one I talk to seems to be looking out passed the next fiscal quarter to properly evaluate their supply chain’s long term health.
A great example of this short term thinking is the current instability at our West Coast ports. Negotiations between the International Longshore and Warehouse Union and the Pacific Maritime Association has had many supply chain managers nervous and looked for alternative routes to get product into the U.S. The vast majority of them have gone to Canadian ports, specifically Vancouver or Prince Rupert. Unfortunately, these ports are serviced by the Canadian National Railway, which already is notoriously well known for their capacity constraints. As SCM’s pro-actively move their shipments to Vancouver, the railway is taking a hit, resulting in increased lead times and late product deliveries. We’ve simply shifted from one bottleneck to another.
It’s relatively conceivable that a long term strategic thinker (i.e. someone who thinks more than one move ahead) would have recognized the issue and found a solution that doesn’t make their situation worse. But most SCM’s, risk managers and buyers don’t think more than one move out, because thinking one move out is considered exceptional in itself.
Companies make lots of bad decisions, all the time. The best companies make the least amount of bad decisions – not necessarily the most good decisions. Innovation still exists, but companies are run by flawed individuals that act in their own best self-interests and remain unconcerned with long term sustainability. The bubbles will to continue to burst – to be successful, all you need to know is when.