Business and business environment

International school of management and technology

Countrywide Financial: Instigators of the Financial Crisis

Student Name: Namrata Maharjan

Teacher Name: Nabin Shakya
BTEC HND in Business
Submission date: 29th January
1. Which management functions did Countrywide fail to implement properly
(planning, organizing, staffing, directing, or controlling)?

Answer:
In 2003 countryside financial corporation was regarded with awe in the business world.
Countryside had the best stock market performance of any financial services company in the
fortune 500, measured from the start of the Great Bull Market over two decades ago. But, as
2007 progressed, subprime defaults escalated rapidly, and Wall Street bankers abandoned the
mortgage-backed securities they had prized, and their supplier, too. In August, they cut off
Countrywide’s short-term funding, a move that constricted its ability to operate, and a few
months later the CEO of countryside was forced to choose between bankruptcy or being
acquired by Bank of America.
Planning is the first function of management, which involves deciding beforehand, what is to be
done, when it is to be done, how it is to be done and who is going to of it. It is an intellectual
process which lays down an organizations objective and develop various sources of action.
Countrywide financial took advantage of the macroeconomics situation without thinking of the
effects of the future events, such as the cyclical state of the economy. Similarly, planning must
be carried out in order to accomplish the intended market goal. The priorities set should be
universally agreed or the individual actions and resources would be misdirected and
misdirected. Planning describes activities that will contribute to the intended results efficiently
and economically. Their short-term focus on gaining market share, growing company revenues,
and other financial metrics were not sustainable in the long-term best interest of the company
or its customers. Therefore, it failed to implement the planning function.
Countrywide also failed in the implementation of the directing function. Directing is said to be a
process in which the managers instruct, guide and oversee the performance of the workers to
achieve predetermined goals. Directing is said to be the heart of management process.
Planning, organizing, staffing has got no importance if direction function does not take place.
The CEO (Angelo mozilo) of the countryside is ultimately responsible for the overall strategy of
the corporation. Angelo Mozilo was definitely involved in unethical behavior. Similarly, directing
is the function of guiding, inspiring, overseeing and instructing people towards accomplishment
of organizational goals. The Board of Directors for a company has a duty to oversee the actions
of the CEO and make sure they are in compliance with the Sarbanes Oxley Act. This is why there
can be conflict when an executive act as both CEO and Chairman. There was a lack of
management oversight, effective communication, and executives not doing their jobs.
2. How could top management better manage risks to prevent a Countrywide-
type scandal?

Good management is the backbone of successful organizations. Managing life means getting
things done to achieve life’s objectives and managing an organization means getting things
done with and through other people to achieve its objectives. Top level management is referred
to as the administrative level. They coordinate services and are keen on planning. The top-level
management is made up of the Board of Directors, the Chief Executive Officer (CEO), the Chief
Financial Officer (CFO) and the Chief Operating Officer (COO) or the President and the Vice
President. In the case of countrywide financial the CEO of the countrywide financial is
ultimately responsible for the overall strategy of the corporation. Countrywide failed because of
the wrong direction of the CEO. Angelo Mozilo, CEO of Countrywide Financial Corporation,
could lead to the concept of a company's risk appetite or tolerance, with no clarity about how
boards should set risk goals, taking into account the different types of risks that these
companies could be exposed to. The top-level managers should maintain the workplace loyalty
to prevent such scandal. Employees that demonstrate and feel greater levels of loyalty to their
company will be less likely to commit fraud.
Countrywide financial was a mortgage bank unlike other commercial banks and thrifts. It was
categorized as the top providers of liar loans which allowed industry to profit for a certain time
but was backward in risks management to prevent the future uncertainties. The company
continued to maintain the flow of lucrative fees, blessed risky mortgage securities that later on
exploded. Similarly, the top management should function properly based on planning and
direction. The directors should increase their involvement in the strategic and operational
activities of the companies. In certain situations, top management as an executive is quiet on
formulating the strategic strategy of the system, i.e., strategic planning, organizational planning
and operational planning. Strategic preparation includes setting up the mission of the group,
logistical planning involves strategies for divesting the ability to resolve the mission, and
organizational planning involves the execution of each function to meet and accomplish those
certain goals ideally.

Top managers must develop a new strategy showing that mortgage lending practices are not
solely in the interest of company’s long-term financial objectives, but in the best interest of
loan receivers and secondary market investors. The mission must be supported by real
practices that would protect people from losing their money and homes they cannot afford.
Unfortunately, after exploiting the American dream and acting like a mass-production loan
factory, Countrywide Financial and all other mortgage companies lost their credibility and
trustworthiness (O’Brian).
Likewise, top managers should establish the code of ethics. To prevent a company, form any
kind of scandals organizations should produce a consistent theory of governance. It should have
concise legal requirements that are consistent with management ethics policies applicable to
company operations. This Code of Ethics should be granted to any employee who is expected to
read and sign it. It should also be provided to consultants who are working on behalf of the
company for their examination and signature. Moreover, it must be mandatory for all
employees (including senior staff) to undergo fraud prevention and identification training. This
training should include the company's policy on organizational compliance: its code of ethics,
the company's policies and standards, as well as the duties and obligations of employees to
disclose wrongdoing in the organization.

3. What went wrong with decision making at Countrywide?

Decision-making is an integral part of modern management. Essentially, Rational or sound

decision making is taken as primary function of management. Every manager takes hundreds
and hundreds of decisions subconsciously or consciously making it as the key component in the
role of a manager. Decisions play important roles as they determine both organizational and
managerial activities.
Countrywide Financial September 26, 2013 “Countrywide Financial,” cofounded by Angelo
Mozilo, was known as one of the most successful financial companies in the beginning of the
21st century. The cofounder had a solid business philosophy; to help low-income individuals
and minorities. “Countrywide Financial" was the largest home loan provider in the United
States, with one out of six loans provided by the company. However, their unethical approaches
led to legal charges, revealed the misuse of subprime loans, and inevitably resulted in the
downfall of Countrywide Financial. It is required to supply financial, technical or other
information as an input to help making decisions at higher management levels, for achieving
maximum on the assets of the business enterprise, however countrywide failed in it. Unlike, it
was categorized as the top providers of liar loans which allowed industry to profit for a certain
time but was backward in risks management to prevent the future uncertainties.
Every aspect of management function, such as planning, organizing, and control is determined
by decisions, the result of which is the performance in the organization. Decision making is vital
to all management activities. It helps set definite objectives, prepare plans of action, determine
organizational structure, motivate personnel and introduce innovations. But countrywide failed
in fulfilling all the functions that a good management must carry out i.e., countrywide financial
took advantage of the macroeconomics situation without thinking of the effects of the future
events, such as the cyclical state of the economy.

Similarly, countrywide issued loans to each and every person without checking their income
statements, history details and information to be legalized when processing applicants for
home loans. The organization did not have a good record of lending to minorities; thus,
unwarranted company officials noted that it was the wrong cause in the crisis. Furthermore,
countrywide failed to select the right and effective course of action for the purpose of achieving
a desired result.
The main reason of the countrywide failure in decision making is because of the wrong
direction of the CEO Angelo Mozilo. Before long, it was David Loeb who understood that some
extraordinary measures ought to be taken to make organizations realize the inner desires he
chose to change whole staff and enroll new highly skilled one with high pay but mozilo was
hesitant to such an extreme move. An unconscious self-serving bias was prevailed within CEO
despite the public warnings of ominous economic signs at other companies.

Refrences

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