There is no substitute for a culture of integrity in organizations. Compliance alone with the law is not enough. History shows that those who make a practice of skating close to the edge always wind up going over the line. A higher bar of ethics performance is necessary. That bar needs to be set and monitored in the boardroom.  ~J. Richard Finlay writing in The Globe and Mail.

Sound governance is not some abstract ideal or utopian pipe dream. Nor does it occur by accident or through sudden outbreaks of altruism. It happens when leaders lead with integrity, when directors actually direct and when stakeholders demand the highest level of ethics and accountability.  ~ J. Richard Finlay in testimony before the Standing Committee on Banking, Commerce and the Economy, Senate of Canada.

The Finlay Centre for Corporate & Public Governance is the longest continuously cited voice on modern governance standards. Our work over the course of four decades helped to build the paradigm of ethics and accountability by which many corporations and public institutions are judged today.

The Finlay Centre was founded by J. Richard Finlay, one of the world’s most prescient voices for sound boardroom practices, sanity in CEO pay and the ethical responsibilities of trusted leaders. He coined the term stakeholder capitalism in the 1980s.

We pioneered the attributes of environmental responsibility, social purposefulness and successful governance decades before the arrival of ESG. Today we are trying to sort out the mess that many dubious ESG practices are causing.

 

We were the first to predict seismic boardroom flashpoints and downfalls, played key parts in regulatory milestones and warned about game changing upheavals in capital markets.

We’re working to advance the agenda of the new boardroom and public institution of today: diversity at the table; ethics that shine through a culture of integrity; the next chapter in stakeholder capitalism; and leadership that stands as an unrelenting champion for all stakeholders.

Our landmark work in creating what we called a culture of integrity and the ethical practices of trusted organizations has been praised, recognized and replicated around the world.

 

Our rich institutional memory, combined with a record of innovative thinking for tomorrow’s challenges, provide umatached resources to corporate and public sector players.

We’re still one of the world’s most recognized voices on CEO pay and the role of boards as compensation credibility gatekeepers. Somebody has to be.

As we noted here last week, President Bush’s speech calling for higher standards in the awarding of CEO pay came as something of a surprise. It seems we are not alone in our astonishment. But if you think about it for a moment, it’s really part of the Bush management style. You wait until a problem is well advanced and has been widely debated, and others are demanding action, and then you move –or at least give a speech. This is what President Bush did in responding to the corporate scandals in 2002, where he favored a more voluntary approach to corporate reform but ultimately signed the Sarbanes-Oxley bill. It also defines his approach to the problems in Iraq, where he waited until public opinion and the November elections confirmed widespread discontent with his handling of the war before he announced a change in strategy and military leadership. And there is Katrina, a showcase of failed presidential leadership if ever there was one.

As with his proposed change of course in Iraq, Mr. Bush’s approach to dealing with the excesses of CEO pay is unlikely to satisfy critics or restore sanity to the compensation committees of North American boardrooms. If Mr. Bush were the CEO of a company, he would probably be heading a big American auto maker. Few industries have more problems today or are so replete with discontented customers and shareholders. Here, too, the problem can be traced to a succession of CEOs who stumbled upon reality too late and long after it had been apparent to buyers who moved on to the competition in the millions. This is what happens with imperial CEOs whose thinking is so set in the successes of the past that it becomes inconceivable for them to contemplate failure in the future. In a business organization this means unconventional wisdom or countervailing thoughts seldom venture into the room. The result can be, well, General Motors or Ford as they are today. Jobs and shareholder value can suffer. But in a government, where dissenting views are stifled or dismissed, such as the case with intelligence analysis that did not conform to the administration’s predetermined views about Iraq prior to the invasion (as Richard Clarke and other insiders have documented), the result can be measured in untold human tragedy and national treasure.

The ability of CEOs to see the world with fresh eyes and from a realistic perspective, and to encourage others to do likewise, is not only a test of leadership but it is also often a determining factor in long-term success. In my many years trying to sort out the problems of major companies, it was the myopic chief executive, and companion complacent directors who were similarly lacking in vision, that were the most common factors in troubled organizations. They would flail about cutting costs, blaming others and looking for magic solutions, all the time not realizing they were standing at ground zero of the problem. Having been the bearer of the bad news that nobody else would convey in such situations, I can report from personal experience that Pharaonic egos do not take kindly to any suggestion that they may somehow be complicit in their own organization’s shortcomings. The reaction I often observed reminded me of the line attributed to Mafia mastermind Meyer Lansky who once cautioned someone to whom he was proposing a “business” arrangement, “Remember, I don’t take rejection very well.”

The fact is, as I have long suggested, in too many cases we have the wrong type of person in the CEO’s chair –individuals not fully formed emotionally or possessed of a broader understanding of the world and their mission in it. We have too many CEOs who confuse being sheltered and remote as a symbol of success and too many who still surround themselves with self-serving sycophants. Nothing reflects these shortcomings more than CEO pay, where American boardrooms have become dominated by those who are obsessed with their own personal gain and are oblivious to the pain they are demanding of others. This was the message of the abuses in executive compensation at Enron, WorldCom, Tyco, Nortel and Hollinger, among others. It was the more recent message in Home Depot’s excesses involving former CEO Bob Nardelli.

Yes, I am still pleased that Mr. Bush made that speech. But I am disappointed that I and so many others were taken by surprise over something that was clearly called for a long time ago. The reaction says a great deal about the failings of his presidential leadership. We expect a leader to be among the first to recognize and speak out about impending threats, whether to society or to capitalism. We should not be content when they are among the last to join the chorus. When we emote surprise over our leaders speaking out about the obvious, it says as much about us and our choices as it does the leaders themselves.

President Bush is a CEO whose “shareholders” now see him as synonymous more with failure than with success. Many are defecting to the competition in the form of the Democrats. It is perhaps, more than anything, his inability to look forward to the consequences of actions, to be guided by a sense of skepticism about conventional wisdom, to ask perceptive questions and his failure to show an awareness of a problem until it arrives on the Whitehouse doorstep, that are the most defining qualities of Mr. Bush’s leadership and management style.