The Medici Case is a classic example that shows the importance of good corporate governance by establishing a balance between control and entrepreneurial initiative. Cosimo de Medici created a plethora of partnerships and built a de-centralized organizational structure that incentivized partners to generate higher returns through profit sharing and autonomy. His multivocal leadership style exemplifies the need for modern managers to build teams with a common purpose and shared vision and use the skills of these diverse set of people to guide collaboration and produce greater economic and social benefits. The Medici bank went downhill when Cosimo’s descendants, Piero and Lorenzo took over.
Their poor style of governance along with a low interest in running the business led to a loss of focus, bad strategy and miscommunication eventually putting the business in jeopardy. Ineffective leaders who do not understand the workings of the organization, are unfamiliar with the industry and do not have the skills to build a team of talented and motivated people seldom succeed in running an organization. Today, multiple family businesses fail when reluctant heirs of family owned businesses are forced to take over the business, calling for a need for better succession planning. The appointment of Sasseti as an advisor during the administration of Piero and Lorenzo proved to be disastrous to the bank. Unlike Cosimo, Piero and Lorenzo heavily relied on Sasseti for advice and gave him enough autonomy to make crucial business decisions. Sasseti, clearly was unable to handle the responsibilities as he had become a victim of vanity and over-confidence. Time and again, when managers are given utmost importance by their superiors and shown favoritism they are unable to deal with it and end up making hasty decisions which can impact the overall organization.
Managers need to be careful as this can affect the morale of other employees, can lead to sub-standard production, create conflicts and hinder the atmosphere of the entire organization. Leaders need to take advice from multiple stakeholders to understand the true nature of the problem and consider the repercussions a business decision may have on the entire organization before going ahead with it. Piero and Lorenzo did not make thorough business decisions and were unable to provide sufficient guidance and feedback to the branch managers. It can be believed that Sasseti was influenced and adopted the style of his superiors and became lax in discharge of his duties resulting in huge financial losses in the Lyons branch. He started making senior management decisions and lifted the ban on providing loans to governments. Multiple evidences of reckless lending practices, managerial irresponsibility and inadequate risk assessments were made while granting loans. Reckless lending practices as observed in the sub-prime mortgage crisis between 2007- 2009 in USA have been a customary cause of failures in financial and lending institutions. Had banks been more cautious in their lending practices by conducting better credit checks on the customers and granted loans to qualified customers, the crises could have been avoided.
Banks need to stop expecting their government and regulators to fix issues still endemic in the sector and be able to provide a relationship of trust and reliability to its customers. The decline of Medici Bank after Cosimo’s death due of poor governance, managerial irresponsibility and reckless practices presents a warning to all organizations to prevent failure by taking appropriate steps on time. This case points to corporate failures such as conflicts of interests, lack of overall vision and limited knowledge and reflects upon the importance of a dedicated and passionate leadership for the success of an organization in the modern world.