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.

Bre-X: The Giant Fraud that Started with a Bang Ends with a Regulator’s Whimper

From the stock market watchdogs who permitted the premature listing of the company to the cops and regulators who were unsuccessful in bringing even a single fraudster to justice, Bre-X was a colossal failure at every level.

It’s not surprising that the Ontario Securities Commission has decided not to appeal the acquittal of John Felderhof, the only person ever to be charged in the infamous Bre-X fraud. Frankly, there have been so many strange twists and remarkable disappointments with this case that there is really little left to be astonished about. As we noted here with chagrin even before this recent setback, the OSC is clearly losing its appetite for criminal prosecution, partly because it has been doing so badly in that regard and partly because it has a leadership culture that prefers to retreat to its less aggressive era. This was pretty much reflected in a statement by OSC chair David Wilson, who told Macleans recently that the agency’s priority was “not to beat the drumbeat of more criminal cases.” As we observed previously, there were many problems with the case, and where it was heard at Canada’s lowest court level, that were beyond the OSC’s control. But if you look at the length of time it took to have the case tried (seven years), the three- year-long motion and appeal interval where it was trying to have the judge removed, and the full year it took for the judge to write his decision (there was no jury in this case) the outcome was probably as predictable as the bewildering process that gave birth to it.

So it is that the largest mining fraud ever has now become the biggest bungled case of its kind in history. From the stock market watchdogs who permitted the premature listing of the company on the prestigious TSE 100 without due diligence to the shut-eyed independent directors, credit rating agencies and analysts who saw only the glitter of fools gold and eventually to the cops and regulators who were unsuccessful in bringing even a single fraudster to justice —and now have given up entirely— Bre-X was a colossal failure at every level. It might also serve as a cautionary lesson to today’s old line boardroom stalwarts who argue that too much emphasis has been placed in recent years on structure and that there is no connection between the architecture of corporate governance and corporate performance. I will have more to say about the confused logic and selective memory of those who would move the boardroom back to the future in another posting. But it would be hard to find a worse example of corporate governance than Bre-X — unless of course you were looking at Hollinger Inc. during Conrad Black’s era or Research In Motion more recently or the nearly 25 percent of companies listed on the TSX Venture Exchange that do not comply with even the minimum disclosure regarding their own boardroom practices which is required as a condition of listing by that exchange.

In the entire decade since the scandal unfolded, not a single agency, regulator or individual has admitted even the slightest responsibility, however indirect, for this calamity. No apology has ever been made to the investors who lost billions or to the larger investing public which has an irrefutable stake in the integrity of the capital markets and the institutions that guard them. No criminal has ever been convicted. You would almost think Bre-X were an inexplicable act of nature for which no mortal can be held accountable. At least not in Canada.

If the Bre-X fiasco occurred elsewhere, and certainly if it happened in the United States, outraged legislators and congressional committees would be in full flight holding hearings to find out why the company went so far beyond the arm of justice. They’d call aggrieved shareholders as witnesses and demand that stock market officials, regulators and justice department chiefs appear before them. They’d want to know if this case was symptomatic of any larger problem and whether such a travesty could happen again in the form of another memorable name. But in Canada, where it is hard to imagine a more dysfunctional system of securities regulation and boardroom crime policing, the biggest disaster in mining history ends with barely a whimper. And the politicians go back to sleep.

Exactly ten years ago, in an Op-Ed column in the Financial Post, I first brought to public light a number of the corporate governance failures that allowed Bre-X to happen. As we close the book on this sad saga, I thought it would be interesting to reprise the article that in many ways foreshadowed all the other failures that came to be associated with that scandal.

Bre-X Was A Failure of governance

J. Richard Finlay

Originally published in the Financial Post, August 1997

Continuing denials of culpability by former directors of Bre-X Minerals Inc. and securities regulators show once again that there is a predictable rhythm to corporate governance issues in the wake of disaster. In what has become the corporate version of line-dancing, academics and the media stamp their feet in demands for reform, regulators scurry for cover from the descending wrath of shareholders, and directors pirouette in elegant assertions that things will change. But when the revivalistic music stops, exhausted directors too often slump back into their boardroom seats, returning to their customary somnolent ways. The ritual is recurring in the Bre-X debacle.

Bre-X was a massive fraud to be sure. But it was also a massive failure of corporate governance. And the failure occurred on a number of fronts. With its insider board, dubious disclosure record, curious insider trading patterns, ever-expanding boasts about ore deposits and confusion about who owns them, Bre-X was a time bomb waiting to go off. But those who could have defused it heard only the siren song of fast money and not the tick, tick, tick, of impending ruin.

Of Bre-X’s board of six, only two members qualified as independent directors. The TSE’s guidelines for publicly traded companies call for a majority of outside, independent directors. This did not appear to bother many institutions or funds. When directors began to engage in heavy insider trading, regulators and advisors should have seen the signs and looked deeper into the details of the operation. Previous problems about licensing and ownership should have provided clues. Few followed that trail. When directors made ever-exaggerated claims about the size of the Busang find, regulators and investment advisors could have demanded more details. None did.

At its height, Bre-X had a market capitalization greater than Imperial Oil, Bombardier, Inco and Molson combined. And that was without any sales or profits. That alone should have prompted major financial institutions and pension funds, to say nothing of regulators, to take a closer look at the company. It never happened.

Another board that should also be doing some soul-searching is the TSE’s. The TSE’s guidelines on corporate governance raise an interesting question: Why does the TSE itself not comply with them?

Of the TSE’s board of 14, only four directors qualify as being independent. That’s far from a majority and far short of its own guidelines on corporate governance. Would a board composed of a majority of independent directors who are unaffiliated from member institutions have been more cautious about Bre-X? Would it have been more wary about putting Bre-X on the blue chip composite index when the company had no track record and when there were so many unanswered questions? Like many things about this scandal, we may never know. But we do know from the past, and from the TSE’s own study, that independent directors make for better boards. And better boards are motivated by the longer view, not necessarily the fastest buck.

Modern corporate governance practices, as every regulator and investment advisor has been taught, have grown out of disasters like Bre-X. The collapse of Great Britain’s Royal Mail Steam Packer Company in the 1930s (which, like Bre-X, also had a board of six directors) and Robert Maxwell’s empire, the S & L scandal in the United States and the demise of Confederation Life and dozens of other financial concerns in Canada all have involved failures of corporate governance. Had those lessons been applied in the Bre-X case, the fraud likely never would have achieved the level it did because institutional investors and regulators simply would not have endorsed a company that failed to practice even the most elementary standards of good corporate governance.

Directors, regulators and investment advisors are paid to read the signs of disaster as well as the portents of profit. The investing public is still waiting for an explanation as to why they failed in their duty over Bre-X.

Bre-X: The Fraud without a Fraudster

The Centre for Corporate & Public Governance has issued a statement on the stunning acquittal of former Bre-X executive John Felderhof. As the statement notes:

In the time it took to charge and try John Felderhof, the lone defendant in the Bre-X case, the scandals of Enron, WorldCom, Tyco, Computer Associates and dozens more came and went; their top executives were indicted, tried, convicted and sent to prison. But in the world’s largest ever mining fraud where billions of dollars were lost, not a single person has been found guilty of even a petty crime.

I have had a number of comments on Bre-X and related issues over the years. I view the outcome today as confirmation of what I have been saying for more than a decade: Canada has a hopelessly inept system of securities regulation and enforcement that is an embarrassment around the world. Perhaps this will prompt Canadian politicians to finally do something about it.

A fraud without a fraudster? Some think it could happen only in Canada. I hope to revisit this topic after my return from vacation.

Outrage of the Week: Bre-X, the Massive Mining Fraud Where Everything that Could Fail, Did

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Like a ghost ship that vanishes and reappears in the mist with long gaps in between, the strange case of Bre-X has taken another turn. The judge who was supposed to deliver his verdict this week announced that he was postponing it until next July, thus taking a full year since closing arguments were made. It is just another one of the strange twists in a case that is like peering through Alice’s Looking Glass.

Here’s part of what I wrote about Bre-X in the Financial Post in 1997, before any charges were laid.

At its height, Bre-X had a market capitalization in excess of Imperial Oil, Bombardier, Inco and Molson combined. And that was without any sales or profits. That alone should have prompted major financial institutions and pension funds, not to mention regulators, to take a closer look at the company. It never happened.

Bre-X was a massive fraud to be sure. But it was also a massive failure of corporate governance. And the failure occurred on a number of fronts. With its insider board, dubious disclosure record, curious insider trading patterns, ever-expanding boasts about ore deposits and confusion about who owns them, Bre-X was a time bomb waiting to go off. But those who could have defused it heard only the siren song of fast money and not the tick, tick, tick, of impending ruin.

Questions began to surface about the company in 1996. A strange little man hired by Bre-X as its local geologist, and who should have had the answers, mysteriously fell to his death from a helicopter in Indonesia in March of that year. The stock soon plunged to a similar fate. Accusations and investigations followed. Eventually, only one person, Bre-X’s chief geologist, John Felderhof, was charged. And it wasn’t even under Canada’s Criminal Code. The alleged offense was one of insider trading under Ontario’s Securities Act.

The case was heard in Ontario provincial court, Canada’s most junior bench, where drunk drivers and break and enter crooks are taken. Mr. Felderhof was charged in 1999. His case came to trial in 2000. During the course of the trial, the Ontario Securities Commission, which is prosecuting the case, decided it didn’t like the judge’s rulings. It sought his removal. Incredibly, that side show lasted nearly fours years. The OSC lost in its attempts to get a new judge and the trial resumed. Closing arguments took place last July. The verdict was to have been delivered this month but the judge announced he needed more time, so the decision is another six months off. There is no jury in cases like this –that’s the way it’s done in Canada. Its antiquated justice system may not require wigs in the courtroom any longer but it resembles its English parent nevertheless, clinging to the notion that Her Majesty’s realm would be imperiled if juries took an active role in dispensing justice like they do in the United States.

Everything about Bre-X shouts of dysfunctionality, if not incompetency. It was a company whose way was paved to a premier listing on the top TSE (as it was at the time) 100 index by unworried securities gatekeepers eager to have the business generated by a hot stock. That mistake gave Bre-X an important imprimatur to investors and its stock soared even further. Due diligence was, shall we say, perfunctory for a junior mining company whose stock capitalization reached into the billions and had never made a penny in profit.

There were more red flags about Bre-X prior to its collapse than fly on an admiral’s ship. Some of those I highlighted in the excerpt above. (I actually raised a number of governance questions during interviews with reporters about Bre-X while it was at the top). No gold, other than samples that were “salted”, was ever found. Billions were eventually wiped out, except for the hundreds of millions the founders conveniently made by cashing in their shares in a feet of remarkable luck, when the stock was at the top and no gold had been produced. Yet the RCMP, Canada’s federal police force, claims that it couldn’t find anyone to charge with criminal wrongdoing. Since Canada is the only member of the G8 and one of the few OECD nations not to have a single, federally legislated securities commission, and prefers that securities matters instead fall to some 13 separate provincial and territorial jurisdictions, the OSC was left to pursue the matter on its own. Like many cases the OSC prosecutes, this one was headed for trouble. It set in motion a chain of events that led to the longest originating trial in Canadian history. In fact, between the period when Mr. Felderhof was charged in 1999 and closing arguments were heard in 2006, the prime suspects in one of Canada’s biggest trials, the Air India case, where 329 passengers were killed by a terrorist bomb, were charged, their case heard and the verdict given in a British Columbia court. The judge in the Bre-X case will spend longer pondering and writing his verdict than was taken by the judge in the Air India trial or in most of Canada’s top appellate cases.

All the actors in this spectacle have much to answer for, yet few seem prepared to begin that process. The farce continues. In Bre-X, Canada’s systems of corporate governance, securities regulation, law enforcement and judicial functioning have all been revealed at their worst and in dire need of major reform, which makes the mishandling of the biggest mining scandal in history the Outrage of the Week.