Returning Ethics to Putnam - Assignment Example

Returning Ethics to Putnam Summary of Background and Facts Putnam Investments Company is a Boston-based fund company. It is owed by Kevin Divney who is also the managing director and the chief investments officer of the midcap growth equity team. The company now is in a crisis. On October 28th 2003 Massachusetts secretary if state and William Gavlin and the Securities and Exchange Commission each had filed a civil complaint against Putnam investments. They claimed that the company had allowed portfolio managers to skirt corporate policies by rapidly trading its funds and allowing some clients to do the same (Depoortere, 2010). In the wake of this crisis, Lawrence Lasser, the company’s CEO of eighteen year was sucked along with other portfolio managers. A new CEO Charles “Ed” Halderman was appointed in his place. At that time Mr. Hadleman was working on a settlement with regulators, states, and large companies with pensions that Putnam managed and was pulling money out hand over fist. Money worth $6 billion had been pulled out of Putnam Company by eleven states by November 10th, including Massachusetts which was a stronghold of the company (Kagan, 2002). Hadleman had a laid back attitude for a CEO of a company I crisis but was focused on creating more balance between life and work. He believes that is crucial to bringing the company back on track. Haldeman who is aged 57 years believes that the industry is already stressful enough. Haldeman joined Putnam in 2002 as head of core investments. Before that he was CEO of Delaware investments a Philadelphia based money management firm. He believes that it is important to have a working culture where people devote their lives to. Statement of Core Problem The major problem in Putnam investments is that in this time of crisis the working culture existing in the company is no helping to solve the situation. Hadleman describes the situation in the industry as already stressful and is making it hard for employees in the company. While other companies believe that compensation brings a balance in their companies, haldeman believes that this is just part of it and that companies need to create a culture that makes people devote their lives to their work. Therefore the major problem is that the working culture in the company is not helping solve the crisis in hand. There is a rigid culture that has dominated the company. Secondary problem The company exists in an environment where there is constant pressure to generate returns. To correct this Putnam has established a work environment that encourages employees rather than dictating them. Alternate solutions Responding to scandal This was to allow free flow of information in the company. Rumors had no time to circulate in the company because, with free flow of information, and ease of communication between employees both at senior level and junior level rumors did not have time to manufacture. On Haldeman’s first day as CEO of Putnam Company, Held 45 minute meeting to discuss what has happened that brought about the crisis and to answer questions. Communication had become a new culture in Putnam Company under Haldemans tenure in the company. Lasser held quarterly meetings in the company’s 800 offices while haldeman opted for all employee meetings where he and other executives talk for 15 minutes and then open the session up for questions from employees for 30 minutes. This improves on transparency and free flow of information in the company. He also sent biweekly emails to employees thus creating openness and transparency at the company. “One Putnam” Creating A Culture Of Collective Responsibility Rapid trading of mutual funds is known as market timing it involves traders jumping in and out of funds in an attempt to take advantage of inefficiency in fund pricing. It causes an increase in fund expenses thus hurting log-term investors. Putnam had banned this practice in its company. In this settlement the fund company agreed too many corporate governance measures, including mandating that portfolio managers who buy funds from the company hold them for at least 12 months. This act cannot be accepted by other companies. To stop this trading culture in the company. Within days of taking over haldeman laid down principles one Putnam: this included: personal integrity, mutual respect and the highest professional standards. This had managers review their values with their groups. Reshaping the Culture The creation of a flatter organization has allowed for more cooperation among departments which did not exist before. There exist three divisions in the company: retail, institutional and international relationships. In the past this divisions worked separately but now by working together there is not only more opportunities to cross-sell products but, employees are increasingly moving to other divisions in the company. The company is now better able to recruit and retain talent. The company has got rid of formal dress code and introduced business casual. This shows that the business does not focus on hierarchy and title but rather on substance and form. Many young employees recommend business casual. Haldeman replaced the executive only dinning room and in its place put up an employee cafeteria. A New Approach to Compensation Before haldemans tenure there lacked transparency in compensation decisions. These decisions were made behind closed doors by a small group of executives. Tensions about bonuses were particularly high in the months after the scandal broke. To correct this company gave out 2003 bonuses three months early in January 2004. The company also committed to keeping bonuses at 2003 levels for the next two years. The three year vesting requirement from the bonus program was removed so that employees could receive their bonuses immediately. Instead of having top executives decide bonus decision for employees managers were given ownership of the process. This saves time. The huge difference between what senior management earnings and what everyone else gets paid was eliminated. Haldeman established a compensation program that rewarded long-term consistent performance as opposed to a home run in a short time. Doing Away With Performance Pressure Employees agree that now the work pressure has reduced and that Putnam is now a better place to work than it was 5 years ago. Performance is now much more consultative making it easy to work in Putnam. Constraints and limiting factors There exists a rigid culture that dismantles the company. There also exists layers of management in the company; this undermines cohesiveness among the employees both at the top level and between the junior workers. There also exists constant pressure to generate results this puts workers under constant pressure (Paul, Miller & Paul, 2008). Implementation of Best Solution Putnam is focusing more in long-term results. This helps in achieving the long-term financial goals of the company. The creation of more balance between life and work gets the company back on track with is mission. Putnam has eliminated the rigid culture that dismantled the company and alienated the workers from each other (Putnam, 1981). Justification for Solution With time it will be clear weather better culture means better performance. So far the numbers are promising. The companies’ employees feel that they have their sight set on the right goals (Pihlström, 2005). The energy spent competing internally is redirected to compete externally. The problem is not inside the building but is now outside the window. References Depoortere, F. (2010). Edward Schillebeeckx and contemporary theology. Londo [u.a.]n: T & T Clark. Kagan, S. (2002). Limits of morality. Oxford: Oxford Univiversity Press. Paul, E. F., Miller, F. D., & Paul, J. (2008). Objectivism, subjectivism, and relativism in ethics. Cambridge, UK: Cambridge University Press. Putnam, H. (1981). Reason, truth and history. Cambridge: Cambridge U.P. Pihlström, S. (2005). Pragmatic moral realism: A transcendental defense. Amsterdam [u.a.: Rodopi. Read More