A Tale of Two Cultures

Last week the Securities and Exchange Commission charged former Countrywide Financial CEO Angelo Mozilo, COO David Sambol, and CFO Eric Sieracki with securities fraud for misleading investors about the company’s credit risks. Driven by an unrestrained ambition to build the company’s market share, Countrywide began writing riskier and riskier loans during the period of 2005 to 2007. Sadly, according the SEC, Countrywide became a tale of two companies—one company that appeared to be an underwriter of prime quality mortgages and another company, hidden from shareholders, that was taking reckless risks in order to grow and expand.

We refer to Countrywide’s duality as a tale of two cultures—one accountable to its shareholders and one entirely unaccountable to anyone. “Flying blind,” “toxic,” and “poison,” are just a few of the tags used to describe Countrywide’s hidden, unaccountable culture and its lending activities. Not surprisingly, when a company allows both accountable and unaccountable cultures to develop inside its organization, disaster is always sure to follow, as it has for Mozilo, Sambol, and Sieracki. And while shareholders and the public in general can take some solace in the SEC’s charges against these three Countrywide executives, such charges don’t even begin to address the underlying problem or reduce the pain of our current economic crisis. Thousands of Countrywide employees were working under the cultural umbrella of zero accountability. Why didn’t they stand up and take personal accountability for what Countrywide was doing? Why didn’t they blow the whistle months or years ago? Why didn’t they have the moral compass or innate conscience to say, “This isn’t right?” Some did, but it wasn’t enough to change Countrywide’s course until it was too late.

As in every organizational culture that lacks accountability, when unaccountable norms and habits get set people become lulled into believing that what they’re doing is okay, legit, and “above the line” that separates accountable behavior from “below the line” unaccountable behavior. And that’s why unaccountable cultures can be so damaging to people, institutions, and the economy. If our current economic woes are going to teach us anything, it must be that individual accountability should never be eclipsed or removed or weakened by the lack of accountability in the larger organization or society. In this case, both unaccountable lenders and home mortgage owners failed to take responsibility for their own actions, preferring instead to enjoy the illusionary protection of a false umbrella that eventually disintegrated, leaving them, along with the rest of us, exposed and damaged.