Putnam Investments: Rebuilding the Culture Case Study Analysis
Summary of the Facts and Key Issues
The case is aimed to address and resolve various ethical and management issues at Putnam investments which is a private investment management fund founded by George Putnam in the year 1937. The firm was growing rapidly under the leadership of CEO Lawrence Lesser who joined the firm in the year 1986. But following the internet bubble burst and the great recession, because of the firm’s major investments in technology stocks, in the early 2000s, the firm’s performance started lagging with its Assets Under Management (AUM) decreased by 38% $391 billion in late 1999 to $240 billion in 2003. The firm also got engaged in inappropriate trading processes such as ‘market timing’ and ‘late trading’. In the year 2003, the firm was subjected to critical investigations by the New York attorney general Eliot Spitzer and U.S. Securities and Exchange Commission (SEC). The firm’s involvement in inappropriate investment activities, the declining trust of its employees in the company and its performance lagging severely damaged the firm’s reputation in the market and the company started losing its, investors and potential clients. Because of this whole situation the firm’s then CEO Lawrence Lesser was forced to resign from his position and the charge was then given to Ed Haldeman. After getting the charge Haldeman was given the responsibility to turn around the firm’s situation, regain the trust of the firm’s employees and clients, and bring significant changes and strategies to the firm for paving the way to growth once again. (Nichols, 2006)
Situational Analysis
Answer 1
The main reasons behind the ethical issues at the firm were its culture, compensation, and leadership problems. The inappropriate market practices like ‘market timing’ and ‘late trading’ were not subjected to any restrictions at the firm. However, on ethical grounds, these practices are considered improper because in practices like market trading short-term investors obtain higher gains and profits over their investments with costs to the long-term investors. Whereas late trading practices are considered way more unethical and often prohibited by investment firms because it involves violations of SEC. But as per SEC investigations, the firm’s culture was immune to such inappropriate practices which led to the deterioration of the firm’s culture. Besides the firm’s compensation processes were performance-based and because of the declining performance employees would want to get compensated with bonuses. However under the leadership of Lesser, there was no transparency at all about the bonus procedures, the employees got engaged in self-trading practices while being employed in the firm. These circumstances led to further unethical problems at the firm.
Answer 2
Haldeman introduced various changes to the organization mainly in the legal, governance, compliance, investments, human resource, and compliance at the firm apart from his introduced changes regarding the leadership, investment philosophies, and communication practices at the company. We do think that Haldeman’s efforts and changes would positively impact the ethical conduct at the company because under his leadership Haldeman brought transparency, consistency, and dependability standards in the bonuses’ calculations of the firm, the bonus structure was changed in a way that it could retain the investment professionals of the firm for a longer period. Besides, according to Haldeman, the firm’s culture was the main reason which the firm was losing its clients and their trust, it is because the culture was based and built around hierarchies, aggressive growth structures, self-driven and short-term gains, etc. it was high time for the firm to take flight out of this culture which was just contributing further to the unethical conducts at the company.
Answer 3
The firm’s Voyager fund which is considered the firm’s most visible fund started underperforming comparatively to the industry. According to Haldeman, the basic reason for the firm’s underperformance was also the firm’s culture, regarding which the fund managers were allowed to manage the funds in any way they could generate greater returns. To do so the managers started focusing on short-term and unreliable in vestments. However, these policies were against his rules and he worked to bring radical changes to change that culture…..
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