Stanton: Creating Constructive Dialogue

Stanton_review_10262014Thomas H. Stanton.  2012.  Why Some Firms Thrive While Others Fail: Governance and Management Lessons from the Crisis.  New York:  Oxford University Press.

Review by Stephen W. Hiemstra

When my kids were young, I taught them that there are 3 kinds of people in this world:

  • People who never learn;
  • People who learn from their own mistakes; and
  • People who learn from other people’s mistakes.

The point is to become someone capable of learning from other people’s mistakes.  Learning behavior determines personal success; it also determines the success of firms.


Thomas Stanton’s book, Why Some Firms Thrive While Others Fail, examines firm learning behavior in the context of financial stress: the Great Recession. He is in a position to know a lot about this subject both because of his long tenure in financial law practice in Washington and because he served as a researcher on the Financial Crisis Inquiry Commission in 2010-2011, a commission established by Congress.  As a researcher, he personally interviewed many of the major players in the financial crisis and the federal regulators.

Stanton is an attorney by trade with the mind of an economist.  He is well-known among Washington insiders, especially in finance, and his book, A State of Risk [1], led Congress to create a new federal agency, the Office of Federal Housing Enterprise Oversight (OFHEO) [2], where I worked during my last 7 years of federal service until I retired at yearend 2010.  Tom and I have known each other since the 1980s when I worked on Farmer Mac legislation and supervision [3].  Tom graciously gave me a copy of this book knowing that I would eagerly read it and write about it.


Stanton writes Why Some Firms Thrive While Others Fail in 10 chapters, including:

  1. Repairing Our Public and Private Institutions: A National Imperative;
  2. Dynamics of the Financial Crisis;
  3. Coping with the Crisis;
  4. Company Governance and the Financial Crisis;
  5. Risk Management and the Financial Crisis;
  6. Company Organization, Business Models, and the Crisis;
  7. Supervision and Regulation of Financial Firms;
  8. Hyman Minsky: Will It Happen Again?
  9. Governance and Management: Lessons Learned; and
  10. Governance and Management: Beyond the Financial Crisis (v).

These chapters are preceded by a preface and acknowledgments and followed by a Table of Acronyms, Notes, References, and an Index.


An important theme in the Great Recession, as reflected in the book, is the need to link and understand intimately highly technical knowledge of financial markets, financial instruments, firm operations, and modeling to firm risk management and business objectives.  The image of a Fortune-500 CEO who wanders the halls having substantive conversations with staff throughout the organization captures this dynamic. Stanton highlights this hands-on, engaging management style in his concept of constructive dialogue.

Stanton writes:

One of the critical distinctive factors between successful and unsuccessful firms in the crisis was their application of what this book calls “constructive dialogue.”  Successful firms managed to create productive and constructive tension between (1) those who wanted to do deals, or offer certain financial products and services, and (2) those in the firm who were responsible for limited risk exposure (10).

The importance of quality dialog within the firm or government agency arises from the simple observation that no single individual, no matter how bright or experienced, could understand the totality of the highly technical financial environment that now exists.  Having an open-minded executive is accordingly insufficient; the firm culture must embrace active learning and open communication.

Stanton’s has an interesting blend of wide scope and technical depth within its subject-matter: governance and management.  Four firms who succeeded received the majority of his attention:  JPMorgan, Goldman Sachs, Wells Fargo, and TD Bank.  Stanton makes the case that these firms survived because of operational competence and intelligent discipline (43).  In other words they maintained disciplined risk taking, combined good judgment with good information, and had good communication (54-55).  Failing firms (Fannie Mae, Freddie Mac, Bear, Lehman, Merrill, Countrywide, WaMu, IndyMac…) failed for different reasons, including focus on short-term growth, ineffective data systems, weak capacity to answer simple questions, and lack of effective communication (57-66).


Stanton’s Why Some Firms Thrive While Others Fail should be of keen interest to financial policy makers and bank supervisors who deal with large institutions.  Because the federal agencies have mostly shied away from writing studies of what went wrong in the Great Recession (unlike earlier crises [4]), this book functions as a quasi-official study of the Great Recession.  For the reader interested in enterprise risk management, his contribution consists of a series of case studies of important firms that both succeeded and failed.  For students of organizational behavior this book should be required reading.


[1] A State Of Risk: Will Government Sponsored Enterprises Be The Next Financial Crisis? (New York:  HarperCollins Publishers, 1991)

[2] OFHEO was created by Federal Housing Enterprises Financial Safety and Soundness Act of 1992 and folded into the Federal Housing Finance Agency (FHFA) in 2008 by the Housing and Economic Recovery Act.

[3] I studied and wrote about the Federal Agricultural Mortgage Corporation (Farmer Mac) as a researcher in the Economic Research Service, USDA and later took a role in Farmer Mac supervision as a financial economist at the Farm Credit Administration (FCA) responsible for Farmer Mac regulation and supervision.

[4] See, for example, an exhaustive study of the banking crisis of the 1980s by the Federal Deposit Insurance Corporation (FDIC) at:

Stanton: Creating Constructive Dialogue

Also see:

Stanton Explains the GSE Risk 

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