Credit crunch report: Anna Cecilie Holst - Building Gender Balanced Business

“Unfortunately, you don’t always know the scale of a particular risk until afterwards. But the key is at least to make an effort to understand what the risks are. And they did not take this seriously enough in this case.”

How much was the crisis shaped by globalisation?
The crisis has been driven in part by the connectedness of networks across the globe as well as the fact that it has not all been regulated or made transparent. Credit Default Swaps, for instance, were traded privately and not in exchanges. People did not know exactly what the risks were. These complexities made it hard for the regulators to keep track of exposure of the institutions as well as of countries.

Was management behaviour and the incentive structures for traders also to blame?
Yes. Innovation was encouraged to create products where fat fees could be added. There was a lot of greed. The bonuses were based on short-term incentives and they should be long-term. It was all based on the next quarter.

Should they have shunned complex financial products?
Yes. When you are in business, you should understand your business. That is a basic requirement. I am a Non-Executive Director of some companies and understanding and managing risk can be extremely difficult.

Unfortunately, you don’t always know the scale of a particular risk until afterwards. But the key is at least to make an effort to understand what the risks are. The finance sector made the wrong assumption that markets not only are best at allocating capital, but that the same markets could also better manage and absorb risks than institutions.

Would things have been different if women had been more prominent on the executive committees and boards of the major banks?
Yes I think so. Women are more afraid than men. And this can be both positive and negative. In the financial world, I think it is positive. Women are not risk-driven. Men are competitive, they like to take risks. Basically by nature, women are more risk averse. I don’t think Lehman Sisters would have taken the same risks as Lehman Brothers. Women are used to managing budgets at home. We know what a balanced budget means. We think ahead, we are not driven by the same ego. We have to plan, we are protective. Some of this crisis was based on greed and individuals showing off about how much they were earning. Women don’t have the need to promote themselves in this way. We understand the meaning of financial management.

“Women are more afraid than men. And this can be both positive and negative. In the financial world, I think it is positive.”

With the same short-term bonuses, wouldn’t women have behaved the same way?
I can only speak personally. For me money is not always the most important goal. For me the really big issue is integrity. In my daily life as a board director it is a question of integrity. I’d rather leave a board I am sitting on than agree to something that goes against my values.

In many cases I’m the only woman on the boards I serve on. Maybe these men are not typical but when I compare the other board directors to me, I notice significant differences. I see that they are more money driven than I am, for example. That is not to say women don’t encourage a greed culture as well. Many women want their husbands to earn a lot of money. But I strongly believe, however, that women are more likely to behave in a more risk-averse and less materialistic way than men.

What do you think will happen now in the wider economy?
If you look at the Great Depression, you had the effect on the real economy first and then the banking crisis. And now here we have the financial crisis first and then the impact on the real economy. I am pessimistic. We are at the beginning of a deep recession. Deleveraging is going to carry on. The banks are calling in their credit on the consumers and also on the companies. There will be more job losses and bankruptcies ahead.

Should businesses focus on cost cutting measures and worry less about issues such as gender balance?
As I said, I think Lehman Sisters would have done better than Lehman Brothers. It follows, therefore, that companies should advance women to the top of their organisations. If you have the belief that women do well, that should be part of your selection criteria. My message to business leaders is that they should definitely encourage women to go up the career ladder. It will be good for their company!

Is there a risk Governments will impose too much regulation and prevent the green shoots of recovery?
I am not for regulation. What I am for is transparency. What is needed is to establish control of the credit system and provide for a better understanding of the risks. For example, it is a good idea to have Credit Default Swaps traded on exchanges which will make it possible to see real prices. People need to see what is going on and do the risk calculations themselves. The problem is that ‘dark’ markets like these have been off the balance sheets. It has not been transparent.

It is important to remember that governments do not create savings, but reallocate them. They are paying tax payers money – their savings. The governments act to stabilize financial markets to enable the participants to position themselves to a changing environment and to allow an orderly unwinding of debt. The fact that they interfere prolongs the process. However, the alternative would be too damaging and politically unacceptable.

The problem, though, is that politicians will be swayed by public opinion, which will look for someone to blame for all the pain they are in. This provides the impetus to introduce regulations to oversee bankers, which may not work to the benefit of the economy.

Will history repeat itself? Could we see another crash like this one?
In principle, history does repeat itself. The most important thing, though, is to focus on the fundamentals. The basics say that one and one is two. In the recent past, many bankers thought one and one would make three.

Anna Cecilie Holst has 26 years experience in the financial and venture/start-up industry. She is Norwegian, based in London since 2002, and works as an investor and a professional board member. She is presently a Non-Executive Director of companies within the service industry to the oil and gas sector, financial services and image technology. Ms Holst was part of the founding shareholders group of the Danish biotechnology company, Medi-Cult AS, and represented them on the board 1986-2000. She has experience as CFO of Whitebird AS and from various positions at Oslo Finans AS and Citibank NA. She holds a MA Degree from St.Gallen, Switzerland, and is also a Certified European Financial Analyst.