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.

The Fallacy of Giants | Part One

David and GoliathAn Essay by J. Richard Finlay

on corporate integrity in the post-bailout era

Recent multi-billion dollar settlements involving Bank of America and JPMorgan Chase show the staggering costs of ethical folly and the culture of moral hazard that places too many companies, and capitalism itself, at risk.

It is the curse of giants to believe in their own invincibility.  It is also the curse of their acolytes, as the White Star Line discovered with its “unsinkable” Titanic and the Philistines learned with the defeat of their champion Goliath at the hands of a young shepherd boy.  Yet these lessons, and countless others, over millennia have not dispelled such illusions in the world of business, where size is seen as an insulator against all manner of misadventures and the too-big-to-fail mentality shows few signs of abating.  Indeed, the extent to which America’s major banks and Wall Street icons were on the wrong track when it came to compliance with the law and standards of ethics during the great financial meltdown and even afterwards is becoming even more striking.  Recent reports involving Bank of America, Citigroup and JPMorgan Chase vividly make the point.

On these pages in the years and months leading up to the worst financial crisis since the Great Depression, and in numerous op-ed columns before that, I wrote about the dangers of relying on the myths of giants.  Until they were categorized as being too big to fail, corporate monoliths like Bank of America, Citigroup and JPMorgan Chase were viewed as being too smart to fail.  Trophy directors and fantastically compensated CEOs, with the assistance of huge PR departments that never seemed to sleep, worked overtime to present an image where success was virtually guaranteed.  The reality, however, was that too many boards were recklessly disengaged from what was happening around them.  Seeds of folly were being sewn by undersupervised employees more interested in creating clever short-term financial devices than sustainable building blocks of long-term business.  And too many investors and journalists had become prisoners of what I call cheerleader capture. First cousin to the condition of regulatory capture, this refers to the state where it is virtually impossible for any dissenting voices to penetrate the thundering chorus of cheers by insiders and their loud choir of supporters.

There were warning signs of the unwise effects of that mindset, to be sure.  Scandals involving security analysts, for instance, for which Henry Blodget became the poster-boy, revealed the dangers of a culture of cheerleader capture.  In too many cases, the analysts who were supposed to be delivering objective assessments of the financial health of companies enjoyed personal and career incentives that caused them to paint a more glowing picture than justified by the facts.  Citigroup was touched in several ways by that scandal.

There were the accounting frauds at Nortel, Enron and Worldcom that were so stunning they resulted in landmark legislation known as the Sarbanes-Oxley Act being passed.  The collapse of Hollinger and Livent provided an interesting coda to those scandals. If these events of just a few years earlier had been taken seriously, they would have produced a higher standard of boardroom oversight that might have prevented the blunders and financial chicanery that brought the world to the brink of the financial abyss in the first decade of the 21st century.

But even before the gales of that crisis rose to full force, this space questioned the governance practices of companies like JPMorgan Chase, Citigroup, Bank of America, as well as Countrywide and Merrill Lynch, two institutions which BofA bought.  We took frequent issue with the sweetheart boardroom deals that propelled their CEOs into the super-compensation stratosphere.  We felt that the excessive deference accorded many CEOs reflected a perilous level of disengagement on the part of boards which in turn were failing to exercise the independent judgment needed to fully protect investors and the public franchise of capitalism itself.

Many of the decisions these companies made were fraught with ethical failures, violations of the law and just bad business thinking.  Their consequences are coming home to roost even years later.  Bank of America recently agreed to pay $9.5 billion in fines to settle civil lawsuits with U.S. federal housing authorities.  Ken Lewis, the company’s former CEO, settled with regulators by paying $10 million personally.  All told, it has cost BofA some $50 billion to resolve a variety of claims stemming from the subprime era, including the fraudulent actions of Countrywide Financial and misleading statements made in connection with the bank’s purchase of Merrill Lynch.

Improprieties at JPMorgan Chase resulted in an astonishing $20 billion being handed over to various regulatory authorities.  The amount barely caused a ripple on Wall Street, where reaction to the announcement registered nothing untoward in respect of JPMorgan’s stock or the reputation of its CEO, Jamie Dimon.

Citigroup, which has also paid out huge amounts to settle regulatory claims, recently failed the Fed’s financial stress test — for the second time in two years.  Its stock languishes at the unconsolidated 1-for-10 equivalent of the same $5 range it was at during the bailout crisis. Were its recent history of losses, bailouts and scandals not sufficient, there are new regulatory and legal issues arising from a potential fraud involving Banamex, a Mexican subsidiary. In one day early this April, Citigroup’s shareholders were hit with a double whammy.  The company said that it was unlikely to meet a key profit expectation it had set and then announced it was paying $1.12 billion to certain investors to settle claims stemming from mortgage securities sold before the financial crisis.

Yet the level of shareholder outrage one might think would be directed at Citigroup’s board for this Job-like litany of woes has, for the most part, failed to surface, just as tolerance of years of poor boardroom practices and bad decisions earlier led to a cascade of scandals and financial losses culminating in the bank’s  liquidity crisis that prompted the U.S. government bailout in 2008.

In no case has any banking or Wall Street executive faced jail time as a result of the misdeeds that resulted in these record massive payouts or those of other companies.  By contrast, in any given day on Main Street, courts routinely hand out jail sentences to elderly seniors convicted of  shoplifting and single mothers who pass bad cheques for even small amounts.

Like the notion of billions and billions of stars in the cosmos often attributed to the late Carl Sagan (with the help of Johnny Carson), it is hard to get the mind around the scale of these fines, payouts and penalties.  And in the case of Bank of America and JPMorgan Chase, and numerous other companies from drug makers to car manufacturers along the way, it seems nobody is even trying.

What seems to be happening instead is that the wrong-headed mindset that gave birth to excessive CEO pay has infected other fields of business responsibility and decision-making.  We explore this further in Part II.

Citigroup Post-Pandit: Still the Calamity-Prone Board

One of the most disaster-plagued boards in corporate America has done it again. Right after the results of a third quarter that offered the first glimpse of a turnaround, it announces the departure of its CEO and COO the next day.  It is a classic case of how not to handle a seminal change, if that’s what it is.  No responsible board would permit a situation where the CEO is gone by noon after a sudden announcement in the morning, unless there is something terribly wrong.  An orderly period of transition to help investors become acclimatized to the new faces typically occurs. The number one and number two executives never leave at the same time, unless the board is oblivious to the effects of harmful conjecture and divisive speculation, which is what the market will always resort to in the absence of credible and timely information.  That’s been happening all day with Citigroup.

These pages have offered much criticism of Citigroup’s governance and leadership for many years.  It has been a rolling disaster since the demise of Sandy Weill. Its stock still bears no relationship to what it once was, and is down some 90 percent under Vikram Pandit.   The bank lags the performance of its peers.  Its board has constantly misread red flags and warning signs has had a tin ear when it comes to how it is being perceived by regulators, investors and retail customers.  Admittedly, there are new faces in Citigroup’s boardroom, but this latest event does not contribute to investor confidence and there is much speculation that lurks behind the departures, to say the least.

What is happening at Citigroup may be totally above board.  But it is a clumsy way to handle it.  And in that regard, nothing has really changed at Citigroup.

RIM Finally Runs Out of Shiny Objects

RIM Finally Runs Out of Shiny Objects

What a contrast is the deathwatch that now grips many RIM analysts.  Years ago, they were bedazzled cheerleaders.  We had some thoughts on the folly of that short sighted thinking at the time. Today, they seem more like jilted  fanboys in the face of the company’s announcement of record losses, shrinking sales and shipments and other setbacks in its new product launch.   

What is happening at RIM is sad for the company, its employees and investors.  What is sadder, still, is that, just like what happened at three other now vanished Canadian icons — Nortel, Livent and Hollinger — it was avoidable, and almost entirely the product of management arrogance that was unstopped because of bad corporate governance. 

We wrote about these same issues in these same companies long before anyone else because they foreshadowed the crisis that history predicted was coming.  In RIM’s case, it was a lesson that even major shareholders who claim a strong commitment to good corporate governance, like the Ontario Teacher’s Pension Plan, were too blinded by the prospects of giddy returns to see.  So they and others gave a pass to the weak board structure and the mesmerized cast of directors who bought into a loopy management style.

These are not popular positions to take, as we often discover.  When we raised issues about RIM’s boardroom culture and ethically challenged top management — and we were the first on record to do so — a barrage of nasty, vindictive and occasionally threatening emails and telephone calls followed.  RIM, it seemed, could do no wrong even when it did (remember the stock option backdating fiasco?), and absolutely no one was interested in hearing a critical word because of the company’s success at the time.   “Who needs a board when you have Jim and Mike?” seemed to be how most saw it.  No one considered for a moment that RIM’s success might be fleeting, least of all entranced directors on its board.  But being a director, investor or analyst is about more than being a captive of a shiny object, whether it is a glittering gold watch or a spellbinding (co-) CEO.

Next on the agenda will be a succession of directors who start to bail out, not wanting their reputations to be tarnished when the Chapter 11 filing is made and not admitting that they, too, took too long to use their mentality to wake up to reality, as Frank liked to urge on Cole Porter’s behalf.

Early clues to RIM’s fast approaching demise, which is clearly underway as the stock hurtles toward the five-dollar mark, were there for all to see, as they were, and are, for many other companies.  They always begin with how the boardroom culture dictates the exercise of power and accountability or whether it plays any meaningful role in that process at all.  But that is a view that too many inside and outside the boardroom, often  caught in a hypnotic state of denial on the one hand and over-deference to the beguiling CEO on the other, remain unwilling to see.  A change in fortune can always happen to the beneficiaries of great success and especially to those who make the mistake of assuming previous success is a guarantee for future wins, as JPMorgan’s board is in the process of discovering today in its widening scandal of losses, and as GM’s, Nortel’s, Lehman’s and Penn Central Railroad’s directors before them learned the hard way.  It seldom announces its impending arrival in a corporate wide email.

For those interested in learning more about the missed boardroom clues that brought RIM to the brink, our full series of 25 posts over the past six years can be found here

*  *  *

Happy Birthday, Canada.  Having survived the theatrics of Conrad Black’s renunciation, the vanishing of the Canadians icons he once headed like Hollinger, Dominion Stores, Massey Ferguson and Argus, and now his coming back to your forgiving embrace after being a guest of the U.S. penal system, you can survive anything.  More significant, however, and worthy of recognition and praise on such a day, is the sacrifice and courage shown by the men and women of Canada’s armed forces who serve to protect freedom and democracy here and in far off lands, along with their families who give so much.  A different kind of war is fought daily at home as well by those who battle poverty, injustice and the tyranny that is often inflicted by power on the part of governments, corporations and the media when that becomes untethered from moral values and human decency.  They seldom receive plaques or medals, unlike Mr. Black who continues to hold his Canadian distinctions despite disgracing them (it was on Canadian soil in Toronto that Mr. Black engaged in his obstruction of justice for which he was convicted in the U.S.). These foot soldiers of a civilized society represent in their often unremunerated and unsung work the best of what Canada stands for in the world.

Quoted in Maclean’s Magazine on RIM

Recent changes only confirm that the  company  remains in denial

We are quoted in this week’s cover story of Maclean’s on the RIM fiasco. Regular readers will know that Finlay ON Governance has been on this story for several years and has long predicted the kind of stock meltdown and leadership turmoil that has rocked the company.  The co-founders’ decision to step aside from the co-CEO slot, but not out of the boardroom, and the appointment of an insider to CEO with an old-guard director moving up as chair of the board, do not change our views.

The Maclean’s piece presents a good overview of some of the failures but is a little short on the root cause, which we have long contended is RIM’s dysfunctional system of corporate governance.  Here are some further thoughts on that subject and why the recent management changes are unlikely to produce the results investors would like.

The fact that RIM’s top management and board could take so long to come up with so little just shows how far out of touch they remain.  It’s obvious that Balsillie and Lazaridis wanted their guy in the top spot and do not grasp why shareholders were looking for more than a marionette whose strings they can pull any time.

What is really alarming is that independent directors think this will work, when a clean break with a strong new CEO at the helm, plus a fresh outsider as board chair  — unaccompanied by RIM’s bulging baggage of failures — should have been brought in.  Of course, any new CEO worthy of the title would have insisted that Balsillie and Lazaridis depart the board, as was the case at Yahoo recently.  It will take a few more tries, and several new shocks, before the company actually gets it right  — if it ever does.

Separation complexes are unfortunate in dogs.  They are a disaster in company founders who can no longer read the market or the wishes of their investors.  The new insider CEO is not the solution.  Nor is the appointment of Barbara Stymiest as the so-called “independent” board chair.  We were among the first — and long before it became fashionable — to openly call for this kind of change.  But putting a long-time enabler of RIM’s governance problems in charge of the board is a little like promoting a sleeping sentry to captain of the guards.

RIM’s boardroom is located in Waterloo, Ontario, but as far as investors are concerned, these changes only confirm that it remains firmly footed in denial.

HP’s Board Leaps Backwards — Again

Another costly blunder from corporate America’s most dysfunctional, discredited and disdained board

HP’s board took another gigantic jump backward today.  It’s not so much that it fired one CEO and hired another.  People have come to expect that on a regular basis from what has become corporate America’s most dysfunctional, discredited and disdained board.

It is the shell game involving HP’s chairman that should prompt eyebrows to be raised even higher.  Ray Lane was the board’s non-executive chairman and played the largest role in the appointment of Meg Whitman as new CEO.  Now, he’s jumped inside, this time to become executive chairman of the board, with a much bigger payday as part of the deal.  We are unaware of any comparable situation where two outside directors suddenly have become insiders, one as CEO and one as head of the board she reports to.  Is this marriage of convenience the main reason why there was no full search for a new CEO?  Is it just one more sign of a cozy club mentality at work in a boardroom where accountability has been the missing voice?  We think so.

We also believe it is a further step in the wrong direction for the board to think that a lead director, yet to be appointed, will be able to provide the necessary focus for checks and balances that is so important to its fiduciary responsibility.  No lead director has ever prevented disaster from occurring in any major company.  It is bad corporate governance, pure and simple. For a company whose most costly product has been disaster, with billions in shareholder value wiped out over the past year alone, HP’s board obviously still does not get the fundamentals of how to execute on its significant responsibilities.

HP’s formula for a turnaround must include the highest standards of corporate governance, not the lowest. The rather large shell game it engaged in by turning a so-called non-executive chairman into an insider as part of the package that brought its newest CEO into the room shows that it does not even know where the switch is to turn that process on.

RIM Needs a New OS — for its Boardroom

The game has changed.  RIM’s management has not.  Neither has its board.

Today’s latest (20 percent) plunge in the stock of Canadian based Research In Motion, this time because the company missed about every expected metric for the quarter, re-confirms that RIM needs a new operating system for its boardroom.  It is the board, with a its succession of lame directors, that has permitted a culture of smugness, distraction and disconnection to cloud the judgment and performance of top management, and has too long tolerated a disingenuous streak in the way the co-founders deal with adversity.  This is what has led to RIM’s fall from glory and the devastation of its stock.  Management was playing its own game and setting its own rules.  It thought success would continue indefinitely and the market would defer endlessly to its much-trumpeted wisdom.

The game has changed.  RIM’s management has not.  BlackBerrys are out.  Apples are in.  The kids decide what’s hip and everybody wants to be cool.  Holding up a new Playbook is the definition of uncool.  Launching it in the summer is the definition of stupidity.   Only grandiose egos, too used to everyone genuflecting to their brilliance, could come up with this foolishness.

Long before it became popular, in the wake of the billions of dollars in company value that have been obliterated, we lamented the weaknesses of RIM’s governance practices .  We predicted further casualties from a board mentality where management is effectively accountable to itself and still allows a regime involving co-this and co-that at the top that would not be tolerated in any mature, self-respecting company, let alone one that is experiencing something of a freefall in its shares. The stock is down more than 60 percent this year.  No significant change in management, or the board for that matter, has been forthcoming.

RIM’s problems will not end until the board steps up, key management actors are forced to step down and a new culture of accountability is rebooted in RIM’s boardroom.