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 new 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 rebuild the trust that many dubious ESG practices have shattered. 


We were the first to predict seismic boardroom flashpoints and downfalls and played key roles in regulatory milestones and reforms.

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.

Trust is the asset that is unseen until it is shattered.  When crisis hits, we know a thing or two about how to rebuild trust— especially in turbulent times.

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.

Mr. Obama and the Oslo Problem


The Nobel Committee’s choice of a wartime president for its Peace Prize produced uncertainty and controversy at precisely the time when these are the last things the world really needs.

The traditional impression of Nobel Peace Prize winners is that of a Rev. Dr. Martin Luther King Jr., who led a sea change in civil rights but did so proclaiming non-violence as a path to those rights.  It is of a John Hume David Trimble, who found a way to bring the Catholic and Protestant factions of Northern Ireland together and end the generations of violence that so long plagued that land.  And it is of a Lester B. Pearson, who brought pride to Canada and relief to the world when, as minister of external affairs, he helped to avert war in Suez in 1956 and established the concept of United Nations peacekeeping.

Avoiding war and ending it; eschewing violence and facilitating peace have been the hallmarks of the prize awarded each December in Oslo.  But in selecting U.S. President Barack Obama for the honor this year, at a time when he leads a nation at war in Iraq and Afghanistan, the Nobel Committee has broken new ground.  No Nobel Laureate has ever accepted the prize while waging war, no matter how vile the enemy or righteous the cause.  And certainly no one has accepted it having just escalated the number of troops involved.

In accepting his award today in Oslo, Mr. Obama gave a speech that was both strong and humble, inspiring and reassuring.  But in advancing the idea that some wars are necessary to defend the peace; that some enemies are so threatening that they need to be eradicated, however indisputable that is, he took the Nobel Committee into territory where it, and no other recipient, has ever gone before.

Perhaps it is a view of the world that will be sustained over time and winners of the iconic prize for peace will be warriors engaged in battle.  It may be that peace is about more than non-violence, and that the use of force is both justified and demanded when there is a moral imperative to act.   There have been occasions in recent years – Bosnia and Darfur come to mind – when the West was too slow to intervene in the face of the atrocities that were occurring.  On the other hand, perhaps this will be seen as an aberration and the view will be reasserted that the quest for peace should be something unique, that war offers no sure guarantee of peace, and, at the very least, that the recipient should not be leading a nation at war.

As we suggested when the award was announced to a stunned world months ago, none of this is Mr. Obama’s fault.  He did not ask for this prize.  He sought not to offend anyone in accepting it, and to honor those who have come before him.  He gave a fine speech.  But it does seem that, if one is to take things like the Nobel Prize for Peace seriously, the custodians of it may have unleashed precedents and raised questions that make the world – and their section of it, especially – more complicated.

Times of sea change, which by any economic or geopolitical measure this juncture in the 21st century surely is, also need their quiet harbors of calm and predictability.  It would be churlish not to congratulate Mr. Obama on his achievement and acknowledge the skill and forthright manner in which he tackled the inherent conflicts between peace and war.  But the fact is that this was an award that produced uncertainty and controversy at precisely the time when these are the last things the world really needs.

Obama Peace Prize Puts Spotlight on Nobel’s Ex-Politicians Who Decide

In the long history of this honor, no head of state has ever received the Peace Prize while he has been in the midst of prosecuting, much less preparing to escalate, an active war.  This year’s choice raises many questions, starting with: Who is behind the award?

The first point to be made about the awarding of the famed Nobel Peace Prize to U.S. President Barack Obama, in the ninth month of his first term, is that it is not his fault.  He didn’t even apply.  The second is that when the world accords to select bodies and private interests the power to bestow fame and prestige, it should not be surprised when those decisions go a little awry.  They have on several occasions in the Peace Prize department.

Here are some useful facts:  The Norwegian Parliament elects five members who select the winner of the Peace Prize, and they serve for a five-year term.  The 2009 committee is made up of past politicians –every one of them.  There are no academics or scholars permitted to sit on the committee.  There are no non-Norwegians allowed.  This is a closed shop.  A Norwegian closed shop.

Closed, too, is the nomination process.  The committee decides which individuals and organizations are permitted to make nominations for the prize.  Over the years, an interesting tapestry has emerged.  Hitler and Mussolini were nominated.  Joseph Stalin was nominated twice.  Mahatma Gandhi, one of modern history’s most iconic symbols of peaceful change and non-violence, was nominated in 1937, 1938, 1939, 1947 and 1948.  He did not win the prize, nor did nominees Winston Churchill or Franklin Roosevelt.  No wonder the prize’s organizers have elevated to the status of state secret who is actually nominated for the award.  That information is kept sealed for half a century.  So is the controversy that might attend the decision-making.  How do you confront fascism and make the world safe for democracy and not win a prize for peace?  Only the folks in Oslo seem to know for sure.

On the face of today’s announcement, it would appear that a committee composed of past politicians has been caught up in the euphoria that surrounds one of the most impressive masters of that craft.  In doing so, they have broken, likely unmindfully as so often occurs in states of euphoria, an important precedent.  In the long history of this honor, no head of state has ever received the Peace Prize while he has been in the midst of prosecuting, much less preparing to escalate, an active war.  As he received word of the committee’s decision today, Mr. Obama was about to meet with his “war” cabinet in the White House Situation Room, to examine recommendations to increase troop strength in Afghanistan.

Long before he was nominated for the office of President, we admired and supported Barack Obama.  He displayed a unique set of gifts as he aspired to lead the United States, and, by extension, much of the world.  His shift to a more inclusive form of global consultative leadership, as distinct from his predecessor’s divisive brand of bullying, is to be applauded and encouraged.  But it is this very admiration that compels us to observe that the Nobel Committee would have done him, and the reputation of the honor with which Alfred Nobel entrusted them, a greater service by giving the youthful President more time to accomplish his goals and to present a solid record of achievement.  Statements of good intentions, no matter how eloquently espoused, are no match for comforting millions struggling with poverty and disease or ending a war that enflamed the world.  Mr. Obama is smart enough to realize that.  He is also smart enough to know that such an award can only serve to raise even higher expectations whose outcome depends as much on others as it does on him.  Indeed, such early distinction might have a counterproductive effect in a world where jealous egos and petty rivalries can often make a fast meal of genuine progress.

Whatever else it does, the award will encourage others to take a much needed look at who is making these decisions and to question how well the virtues of openness and transparency, which are essential to nearly every other important global institution, are being served.

We suggest that a good beginning for such a review start with an enumeration of the chairman and members of the 2009 committee:

Thorbjørn Jagland (chair, born 1950), member of Parliament, President of the Storting and former cabinet minister for the Labour Party.  Member and chair of the Norwegian Nobel Committee since 2009.

Kaci Kullmann Five (deputy chair, born 1951), former member of Parliament and cabinet minister for the Conservative Party.  Member of the Norwegian Nobel Committee since 2003, deputy chair since 2009.

Sissel Rønbeck (born 1950), deputy director, Norwegian Directorate for Cultural Heritage (Riksantikvaren), former member of Parliament and cabinet minister for the Labour Party.  Member of the Norwegian Nobel Committee since 1994.

Inger-Marie Ytterhorn (born 1941), former member of Parliament for the Progress Party.  Member of the Norwegian Nobel Committee since 2000.

Ågot Valle (born 1945), member of Parliament for the Socialist Left Party.  Member of the Norwegian Nobel Committee since 2009.


An Unbecoming Ben Bernanke

When the President of the United States, especially this President, and Wall Street, are of the same mind on an important matter like who the Fed chair should be, ordinary citizens need to hold on to their pocketbooks.

Having misjudged the gathering financial storm that would engulf much of the world (and in many ways still does) and then deciding to throw unprecedented amounts of liquidity at the problem (most of which was targeted at propping up and otherwise saving a colossally careless banking sector), Federal Reserve chairman Ben S. Bernanke is an odd choice for re-nomination in that post.  Nevertheless, President Barack Obama did so today.  Wall Street is pleased.  When the President of the United States, especially this President, and Wall Street, are of the same mind on an important matter, ordinary citizens need to hold on to their pocketbooks.

In some respects Mr. Bernanke seems like the character from the Woody Allen movie “Zelig,” where an otherwise unimposing man has the inexplicable capacity to transform his appearance to impress those who surround him.  We know that Wall Street and world bankers are impressed with Mr. Bernanke, given the size and generosity of the Fed’s discount window and the hundred and one other programs the Fed established in the prop-up and bailout department.  And they are certainly impressed by his zero interest rate policy, which is putting billions into the banks as a result of this Fed-made upward sloping yield curve.  It is because of Mr. Bernanke that the bonus compensation train has barely slowed from its previous bullet-like speed and companies like Goldman Sachs have been able to return to early profitability with the help of a (Fed-approved) $13 billion payment from AIG, courtesy of the American taxpayer.

The White House may see in Mr. Bernanke a fitting figure whose help will be needed to accommodate and finance the swelling national debt.  Mr. Bernanke has already shown that he is not averse to printing money and using the Fed’s powers in out-of-the-box (i.e., expensive) ways.  And a Fed head who presided over the largest expansion ever of that institution’s balance sheet is unlikely to cast too critical a glance at the prospect of a record national deficit.

Even most legislators seemed mesmerized by Mr. Bernanke’s appearances to the point where they forgot he was rather disingenuous when it came to explaining the mystery of the Bear Stearns junk assets, which the Fed claimed to be holding as collateral only to admit later that it owned the whole clunker.  There are still unanswered questions about the Fed and Bank of America, the Fed and AIG and the Fed and Lehman Brothers.

Not to be forgotten in all of this is the fact that, as a member of the Fed under Alan Greenspan, Mr. Bernanke adopted the same blind obedience to the market forces that permitted the housing bubble to occur and showed no awareness whatever of the explosion of toxic financial instruments and the risk that was being incurred at the highest levels of American finance.  Vision has not exactly been Mr. Bernanke’s forte, yet, looking forward, he claims that the Fed will know precisely when to begin to dismantle its Frankenstein-like creation.  He makes it sound as simple as opening a new app on an iPhone.

But the more likely scenario is that the costs and consequences of the economy’s withdrawal from this Fed-led morphine-like addiction that dulled the realities of economic pain will be staggering.  When interest rates spike, liquidity is withdrawn and inflation surges to new heights, and the economy again begins to falter from its so-called cure, Mr. Bernanke will become the least popular man in America, just as the Woody Allen character Leonard Zelig eventually lost his capacity to spellbind and incurred the wrath of everyone around him instead.

Larry Summers, long thought to be President Obama’s choice as Fed chair, saw what is looming ahead.  That, more than anything, is why Mr. Bernanke gets to keep his job.

Our previous observations and misgivings about Mr. Bernanke and the Fed can be viewed here.

The Missing Question in the Obama Regulatory Reforms: Where Was the Board? | Part 1

Had there been no board at all at AIG, Bear Stearns, Merrill Lynch, Lehman Brothers, General Motors and so many others, it is hard to imagine how the outcome could have been any worse for those institutions and their investors. This is a stunning indictment of a vital and much relied upon function of modern business that creates real systemic risk. It should not have been overlooked as major focus for reform.

Take any defunct company or failed enterprise of major note in recent years -Enron, Hollinger, Nortel, Bear Stearns and Lehman Brothers jump to mind-  and you will see the faint outline of the ghosts of its board desperately seeking to attain meaning in death which it failed to achieve in life. In many cases, the difference between the productivity of a sleeping board and one no longer breathing at all is barely perceptible in any event. These boardroom apparitions have likely tried to make contact with the administration of U.S. President Barack Obama as it prepared its sweeping agenda for reform of the financial system. They have apparently been without success in that endeavor as well.

Whenever there has been a collapse or serious threat to the survival of a company, a first slumbering-and then startled-board of directors has been discovered cowering close by. The inability of directors to properly direct and exercise the informed, independent judgment that is required of their positions was a defining feature of the 20th century’s two great financial upheavals. It is a distinguishing factor in the worst economic crisis of the 21st century, where board after board claimed to be unaware of the true depths to which their companies had fallen and most professed surprise at the extent to which management had run amok with risk and debt.

As we have observed many times in public forums and before legislative committees, no other institution in modern business has so persistently failed to perform its intended mission or brought discredit to otherwise illustrious names of accomplishment and virtue as the board of directors of the publicly traded company. At a time when their size and power have expanded to the point where companies have become too big to fail or require billions in taxpayer support to prevent their total collapse, it is unacceptable-indeed, it is an affront to any concept of sound risk management-that the board of directors is the weakest and most unreliable link in the corporate governance chain.

In the run-up to the subprime debacle that brought the world to the brink of financial collapse, boards at some of America’s oldest and most respected financial institutions were seemingly oblivious to the risks that their companies were incurring or the mortal threats that were gathering on the horizon. Many, like Bear Stearns and Lehman Brothers, seemed to have no effective oversight at all. Citigroup’s directors appeared to be in a constant state of suspended animation, acting always too slow and too late on the few occasions when they actually did anything. When AIG’s directors received warnings about the Financial Products division, whose out-of-control derivatives business eventually brought the company to the edge of ruin, they remained in denial. At Hollinger, big name directors seemed to have all the requisite skills, except the ability to read and ask discerning questions of a constantly scheming management. Even in non-financial companies, like General Motors, the board seemed indifferent to management’s repeated failure and disconnected from the changes that were reshaping the consumer market. (See these companies under categories section for more analysis).

And in virtually every case where the existence of a company has been imperiled, or it has disappeared altogether, the specter of wildly excessive CEO compensation loomed large. Rather than acting as watchful guardians of shareholders’ assets, directors too often seemed to be little more than obliging ushers, happy to facilitate the greatest transfer of wealth of its kind in history to the CEO class of management. It is the failure of boards to properly bring discipline to the compensation file that permitted a situation whereby CEOs were encouraged by oversized bonuses to take the unjustified risks that later led to a cascade of unprecedented failure and stock market calamity.

It is not a matter that accountability and director engagement have had an insufficient presence in the American boardroom. In many cases, they didn’t even make it into the company’s main floor elevator. Had there been no board at all at Enron, AIG, Bear Stearns, Merrill Lynch, Lehman Brothers, Hollinger, Nortel, Livent, General Motors and so many others, it is hard to imagine how the outcome could have been any worse for those institutions and their investors. This is a stunning indictment of a vital and much relied upon function of modern business.

So it is with astonishment that we find the issue of corporate governance and the need to make boards work as intended are nowhere to be found in the Obama administration’s comprehensive agenda for financial regulatory reform. Nor does it appear that the Securities and Exchange Commission is undertaking any significant overview of what has gone wrong at so many boards, as we recommended on these pages some months ago. Indeed, in the executive branch’s proposals for reform, the term “board of directors” as it applies to the publicly traded company appears only once-in passing-in all the report’s 88 pages.

The issue is hardly insignificant. As we said last April:

Here’s something else the SEC is missing: What exactly was the role of boards of directors in the credit and financial meltdowns of the past 18 months, and to what extent did a failure of structure or culture among directors contribute to a global crisis affecting hundreds of millions of individuals, costing trillions of dollars and eventually leading to the collapse of banks around the world?

What boards did and did not do, and how they were organized, in recent years and months when calamity has been such a frequent guest are lessons that are too important to ignore. We suspect that what will be found is a weak and compliant boardroom culture where the most taxing job for most directors was lifting the rubber stamp marked “yes.” That, in our view, is the real definition of systemic risk.

Boards exist as stewards of other people’s money. The wise use of that trust is central to the principle of capitalism. Without it, capitalism would cease to exist. Either the board of directors occupies an important place in the functioning of the modern, publicly traded, corporation, or it does not. Either there is the need to ensure that management is held accountable and that directors answer for their stewardship to investors, or that charade should come to an end. Either the system of corporate governance that has evolved over the past 100 years and which views the board as the lynchpin of that regime should be accorded its rightful prominence, or an entirely new system needs to be created.

One thing is clear: Oversight of the operation of a company, including its management of risk, the supervision of its ethical standards, the quality of supplier, employee and customer relations and the accuracy of its financial reporting, cannot be left to outside regulators alone. Capitalism and its stakeholders cannot rely on government for every aspect of their survival. That is for other systems of economics and government, not for one that values freedom, individual choice and personal initiative. What capitalism must do is to first look within its own system to ensure that the tenets of fairness and integrity that are essential to its existence are being upheld. Companies need to self -regulate if they are to fulfill the promise of a system that is said to thrive in a climate of least involvement by government. It is the job of the board of directors to perform this self-regulating task, though, sadly, many boards betray discomfort when called upon to protect their own shareholders’ interests, much less serve as guardians of capitalism. Free market advocates and champions of limited government someday need to address this glaring gap in leadership.

Public policy periodically, and generally after some scandal or disaster, has tended to recognize the vital role that boards hold and has attempted to raise their standards of performance and accountability. This happened notably in the 1930s and again after the Enron-era accounting scandals. There is no reason to think that, in the aftermath of the most costly abuses and betrayals on the part of Wall Street and the financial sector since the 1930s, the importance of the board has suddenly been diminished or its need for reform has been averted.

If restoration of confidence in the system of capital markets is the goal of the Obama reforms-if there is a genuine desire to minimize the chances of disaster in the future-the role of the board of directors, and what needs to be done to make it more effective, cannot be overlooked. It was disappointing that the administration, which is otherwise rather astute in its comprehension of economic forces, chose to do so. We look at some ideas to bridge the gap between what boards are supposed to do, and what they have actually done, in Part 2.

The Architect-in-Chief

In his first address to a joint session of Congress last night, President Barack Obama showed a craftsmanship with words that is possible only by political leaders who possess a unique appreciation for the promise of language and a rare gift for writing the ideas that have historically transformed civilizations.  America finally has an architect for its recovery, restoration and renewal.

There are fewer constants in the long brow of history than the power of words. Politicians from the times of Pericles and Cicero down through the ages have known that the right mixture of words and ideas, of cadence and drama, can yield a magic elixir that captivates and moves people to accomplish astonishing feats. That skill was persuasively evident in President Barack Obama’s first address before a joint session of Congress last night. (more…)

To Begin Anew

The Inauguration of the 44th President of the United States

And so America begins a new chapter in the experiment conceived by an unlikely collection of farmers, soldiers and gentlemen who placed everything they had on the line for the liberty they cherished above all.   The inauguration of the first African-American as the 44th President of the United States is one of those rare sea-changing events that has managed to capture the imagination of so many in America and around the world.  Where the flight of history and its more fickle companion called fate will ultimately take Mr. Obama and the nation he will head is, at this point, unknowable to us.  But a remarkable surge of events that could not have been thought of, much less predicted, even a year ago, appears underway that is carrying America and beyond to a very different place in the history of modern governance.  Few presidents have arrived in office on the wings of such goodwill and cheerfulness.  Fewer still have stood to take their oath at such a defining moment of profound economic unease.