Something has gone fantastically awry in the risk management and oversight of some of the world’s most renowned investment bankers and financial institutions. The shortcomings in their controls and governance systems that permitted multi-billion dollar losses at Citigroup, Merrill Lynch, Bear Stearns, UBS and Swiss Re, and the overall failure of top management and boards to comprehend the risks of the subprime related investment vehicles they were packaging and selling, has been a recurring theme at Finlay ON Governance in recent months. We were taken aback, as we noted last week, when new Merrill Lynch CEO John Thain told the Wall Street Journal “Merrill had a risk committee. It just didn’t function.”
But nothing has been as breathtaking as the loss of more than $7 billion by Société Générale, apparently the result of a rogue trader acting on his own. (more…)
What does it say when an America that once saved the world is now turning cap-in- hand to a collection of anti-democratic regimes from Dubai to China?
Already, foreign funds, mainly controlled by nations and regimes that hold democracy suspect, to say the least, have pumped nearly $20 billion into Citigroup and Merrill Lynch as a result of the credit debacle that has them floating in a self-created sea of write-downs and losses. Billions more are being funneled into Morgan Stanley and Bear Stearns from the same offshore sources. So it is that American capitalism has lost its primacy to such an extent that it must now turn to lands far away for its salvation. The distance is more than geographical. It is deeply ideological. (more…)
When the misguided decisions of Wall Street can so radically alter the life and fate of every Main Street in America, it is time for Washington to weigh in, big-time.
Our comments about the Great American Boardroom Bailout Sweepstakes caught the attention of the ever-watchful Marketbeat column at the Wall Street Journal yesterday. We get the impression that there is some much deserved second-guessing going on about the wisdom of the solutions Wall Street –and the Fed, for that matter– have come up with to repair the damage their folly and misguided thinking have caused. The fire sale of Citigroup stock to offshore sovereign funds controlled by non-democratic regimes, for a chunk of the company at prices that would have been unthinkable just a few months ago, is finally prompting some questions among investors. And this was before today’s stunning report of a larger-than-expected fourth quarter loss, more write-downs, a dividend cut and job layoffs that are just the beginning of that sorry process. (more…)
Declining bonuses this year? How about boards showing a little spine and demanding that executives give back a chunk of the oversized paychecks that were awarded in the years when these ill-fated decisions were being made.
It’s dangerous to be walking around Wall Street these days. You never quite know when another company will hit the ground with a walloping loss or some CEO will tumble out of his job. Is it not astonishing that when chief executives are elevated to god-like status, with a commensurate compensation package, sometimes they are a little light in the miracle production department? Many are appearing a bit too human in the wake of the subprime fiasco. It is not a role to which they have been accustomed.
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Finlay ON Governance made its way into the top business story in the New York Post today. I’m quoted by reporters Zachery Kouwe and Paul Tharp in connection with Citigroup’s handling of the events (and its staggering losses) that culminated in the resignation on Sunday of former CEO Charles O. Prince.
Here’s an excerpt (complete with the misspelling of my name —no ‘d’ in Finlay please.)
Governance experts said the brunt of the blame for Citigroup’s problems and turmoil rests with its 13 directors, excluding Prince, who collectively earned $43.8 million in compensation last year.
“Directors are not like some kind of 1950s housewife who was always the last to learn about the misadventures of her husband,” said J. Richard Findlay, head of The Centre for Corporate & Public Governance.
“Their job is to oversee the CEO and to be aware of key events in strategy and risk at every stage along the way,” Findlay added.
It’s nice to be in New York again, even if it is just the virtual me. The on-line version of the article is available here.
Boards don’t just anoint an emperor CEO and remain a hapless bystander of events. Their job is to assess and oversee issues of risk, as well as the CEO’s performance.
First it was Warren Spector, co-president of Bear Stearns. Next it was Merrill Lynch’s E. Stanley O’Neal. Yesterday it was Charles O. Prince of Citigoup. In the space of a few months, the subprime meltdown that is producing calamitous losses in the banking and financial services sectors is also producing suddenly-empty corner offices. More will doubtless follow. But isn’t there an idea that maybe boards have some role in helping to prevent these disasters, too? They don’t just anoint an emperor CEO for a period of time and remain a hapless bystander of events. Their job is to assess and oversee issues of risk as well as the CEO’s performance. It seems too many boards have been a little slow to adjust to that heightened level of responsibility. (more…)
