Polarity Management Essay

In the news regularly since the Great recession of 2008 has been companies that engaged in risky betting through the over-usage of the family of complex derivatives. These are financial products that act like insurance but are not regulated like insurance products. In fact, there was little transparency in this market, and especially so with AIG, the largest insurance company in the world which was near collapse when many of the derivative products they were selling came due, and they had to seek a bail-out by the federal government or face total collapse. Nowhere did this happen most than in the Financial Services Division of AIG, located in London. “At its peak in 2008, the unit had $2.7 trillion in exposure to counterparties through derivatives and other obligations”. There are still questions about “how the insurer manages the risk of possible losses,” since, in the years leading to 2008, there was obviously little worry that loss would occur (Nasitipour, 2013).
At stake, here, is the concept of polarity, and this scenario: “’If we don’t take a few risks and innovate, we’ll die,’” as posited to be the “tug of war” that many managers face. At the core of polarity thinking is a “battle perceived to be a win-lose situation,” when there are actually other options. And those options are found in polarity management (Beech and Joyce, 2009). With regard to the Financial Products Division, with only about 300 employees, was that managers, specifically, “may have failed to properly measure and manage risk, misled supervisors and investors, and lacked appropriate checks to limit outsized risk-taking” (Nasitipour, 2013).
If polarity management would have been engaged, then perhaps “new creative options . . . which result in sustainable outcomes “could have been implemented and that would have been “well supported by all”. What appeared to have happened at AIG was an either/or situation (a definition of polarity thinking). That is, 1) either the department engage in incredibly risky bets through usage of phenomenal amounts of complex derivatives, or 2) we’ll die. Polarity management maintains that there are other alternatives available (Beech & Joyce, 2009). For instance, recently AIG has reigned-in the amount of risk-taking in that department, lowing the volume of risk by 95% since 2008 (Nasitipour, 2013).
Behind most of the risk assumed was one manager, Joseph Cassano. He only had one focus: a “singular focus on maximizing profits as fast as possible to the exclusion of focusing on long-term fiscal responsibility,” by over-leveraging the complex derivative products. Had polarity management been in practice in the years leading up to 2008, then possibly there would have been such a restructuring of the department long before the either/or scenario – and Joseph Cassano (“one man who could [conceivably] undermine the well-being of the entire world”) – the AIG’s tremendous losses in 2008 might reasonably have been avoided because of a more “balanced concern for short-term institutional gain with concern for social responsibility and sustainability” (Beech & Jones, 2009).

References

Beech, Patricia and Joyce, Jennifer. 2009. Escape from Flatland: Using Polarity Management to Coach Organizational Leader from a Higher Perspective. International Journal of Coaching in Organizations, 2009 7(2). Retrieved www.margaretseidler.com/wp-content/uploads/2014/01/ArticleTrueNorth.pdf
Nasiripour, Shahien. 2013. AIG Financial Products Probed By Ben Lawsky For Alleged Risk Failures. TheHuffingtonPost.com Inc. June 11, 2013. Retrieved http://www.huffingtonpost.com/2013/06/11/aig-ben-lawsky_n_3424386.html