One of the first things students get taught in business school is that it is a bad idea to replace senior management in the midst of a crisis, especially if those people have been around for a long time and seem to know what they are doing.

Fannie Mae (FNM) is in the middle of its own trouble, but it has had its problems for some time. Against the conventional wisdom, it dumped some of its top people.

FNM CEO Daniel Mudd pushed out his chief business officer, his CFO, and his chief risk officer. That is a lot of people to swap as the company is just coming to grips with its problems. The replacements will probably take a little while to get the hang of their new jobs. It is hard to see how that is good at a firm where there has to be a premium on quick decisions to solve tremendous trouble.

The question for Mudd is when did he know some of his top people were inadequate. He would have been much better off to hire a strong senior team when the firm was at the beginning of its disaster. Why couldn’t Mudd figure out that his management group was not up to the task until so late in the evolution of Fannie Mae’s difficulties?

All of the people that Mudd moved out had been at the company for at least two years. It is amazing that it took so long to ferret out that they could not handle themselves during dark hours. When did they go from being competent to being incompetent?

And, what of Mudd? Is his ability to make judgments so flawed?

The personnel changes say more about Mudd’s skills than those of the departed. If his lieutenants were such buffoons, how did they last so long?

Douglas A. McIntyre

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