Page 63 - MS Year in Review 2020

Chief Operating Officer, and the man who assumed leadership of AIG’s Financial

Products group in the fall of 2001. In 1998, Cassano played a key role in the
34
company’s internal “credit-default swap” debate. Almost from the beginning,
Cassano was a big supporter of the credit default swap product. He, as well as

others, failed to understand the risks involved, and he seemingly failed to
understand that he was betting the company. Under his Cassano’s leadership, the
Financial Products division would take on more risk. Management became more top

down. The long held cultural norm that anyone could question any transaction at
AIG was abandoned: “The culture that had characterized the firm (AIG) from the

outset – one in which just about anyone could question a trade – would change,
35
according to people who worked at the firm.”
No one dared question the logic of the credit default swaps trade, leading to an

existential crisis that required a government bailout of AIG.

THE UNDERLYING CAUSE OF A CRISIS CAN BE

INTERNAL, EXTERNAL, OR BOTH

Poorly designed or underdeveloped systems and processes, a dysfunctional or

poorly managed company culture, and ineffective planning or plan execution are all
examples of factors that can cause a crisis. However, a dysfunctional corporate
culture stands out as one of the leading causes so organizational crises. As noted

above, a dysfunctional corporate culture was a key contributor to the crisis
8 of the 9 companies in our sample, and a possible contributor to the crisis in
the ninth company.

34 Ibid.
35 Ibid.

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