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.

BOTCHED APPOINTMENT SHOWS SERIOUS FLAWS IN HOW CANADA’S SUPREME COURT JUDGES ARE CHOSEN

It has been nearly 30 years since I proposed a more open process for selecting and confirming nominees to the Supreme Court of Canada in the op-ed pages of the Globe and Mail.  I was among the first voices to do so.  But the Frankenstein-like creation followed recently by the Harper government in the botched nomination of Marc Nadon is not the solution.  It’s a big part of the problem.

Every aspect of the lives of Canadians is influenced by the nine-member top court.  This past year alone saw landmark decisions involving the right of physicians to end the life of a patient over the objections of a family and extended free expression rights to reporters and bloggers. How someone is appointed to that court, and who is actually appointed, are matters that should command the attention of much more than the usual suspects in the legal community.

Until the early part of the 21st century, appointments were made purely on the whim of the prime minister of the day.  But the Nadon appointment followed a model established with the naming of Justice Marshall Rothstein to the Supreme Court in 2006.  And it is here the process descends into byzantine complexity and opaqueness worthy of the great Machiavelli himself.

This is how the scheme works.  In an entirely closed process, the minister of justice puts forward a list of names to a group of legal elites, including the chief justice of the Supreme Court of Canada, the Quebec minister of justice and the Canadian Bar Association.  Their job is to advise on the suitability of the candidates presented — the legal equivalent of pre-qualifying for a mortgage application.  The criteria for selection, and how the list is arrived at, are never made public.  The names on the list are secret, and so is the actual number considered.  The Department of Justice claims that the minister also “consults” with the prime minister in coming up with the list, but we know who is really running the show here.

Next, a special committee, known as the Supreme Court of Canada Selection Panel, is formed.  This group consists of five members of parliament.  In the Nadon nomination, it was comprised of three Conservative members and one each from the Liberal and NDP benches.  The committee meets, also in secret, to review the list of pre-qualified candidates provided by the minister of justice.  After its closed-door deliberations the committee presents a list of three candidates it deems acceptable. But whether this was arrived at by a majority vote or was unanimous is never disclosed.  The only name that is ever revealed publicly is the one chosen and announced by the prime minister.  This peculiar process does not end here, however.

After the prime minister makes his decision known, an ad-hoc committee of MPs is formed. Their job is to ask questions of the candidate during a televised session. But they don’t get to make recommendations or to vote on the prime minister’s choice.  In fact, their role seems to be relegated to that of mere stage props for one leading part: the prime minister’s choice for the top court, whose performance is usually distinguished by smiles, sports anecdotes and stories of triumph over various childhood adversities.

With the Nadon nomination, the committee had less than three days to get up to speed on the candidate’s background and legal history and to prepare discerning questions.  In the United States, it can take three months for the Senate judiciary committee to prepare for its hearings on Supreme Court nominees. Nor was the time adequate to engage Canadians in the process.  But then this was never intended to be a real vetting of a nominee of the kind that might reveal important aspects of the candidate’s judicial philosophy.

After all, there is nothing significant hanging on this committee’s actions when the outcome is pre-determined and no actual confirmation vote is ever taken. Mr. Harper has virtually unchecked power in the choice he makes. He determines everything from who gets on the initial list to which of the three names is selected for the nomination.  If, for example, all the names presented in the process are male, how exactly does a woman get appointed to a court already heavily male-dominated?  Had Mr. Nadon’s nomination not been blocked in a most ironic twist by the Supreme Court itself, he would have completed a court comprised of 7 men and two women.

That last sentence about the decision of the Supreme Court of Canada, which amounted to the Court’s saying a resounding “non” to Mr. Harper’s choice, is the biggest kicker of all in this flawed system.  Apparently, through all of this contorted process, it never occurred to anyone that, for at least one name on the list, there was a serious chance his qualifications were not in compliance with the Constitution of Canada in respect of Quebec’s enshrined right to representation on the top bench — not a small point when dealing with a Supreme Court appointment.  And the rejection of Mr. Harper’s nominee was not exactly a squeaker.  Six of the seven voting justices called the Nadon nomination unconstitutional.

As this experience shows, it’s time to go back to the drawing board.  A cloak of secrecy continues to obscure how Canada’s top court is chosen.  What is still missing is a genuinely transparent process that fully engages and informs Canadians while demonstrating that democratic values are followed in filling these critical positions.  That’s unlikely to happen, however, since in Canada a prime minister simply has too much power — another case I attempted to make in the op-ed pages of the Globe and Mail some 14 years ago.

Unfettered power, which is what any majority prime minister for the most part enjoys, is an unwise exercise in tempting fate, as Mr. Harper — and his nominee — have now discovered.

“Ask Not”: Still The Defining Call to Generations

A half-century later, the message that came to define the Kennedy era still stands:  We are all ennobled when we follow a purpose greater than ourselves.

Exactly fifty years ago today, the word went forth that the torch had been passed to a new generation.  On this cold January day in 1961, a newly sworn in 35th president of the United States called upon his fellow Americans to “Ask not what your country can do for you; Ask what you can do for your country.”

But what remains truly remarkable about John F. Kennedy’s words is that they speak not of a climate of government welfare or expansion, as so many still accuse Democrats of encouraging.  These lines foreshadowed the period of personal responsibility that Republicans attribute to the era of Ronald Reagan.  They also were harbinger to the spirit of volunteerism and giving that have come to be seen as the best elements of a civilized society.  And do they also not speak, in a lightly chastising way, to those so self-centered in their pursuits, as many in the world of finance are who continue to demand and receive astronomical bonuses even in the post-great recession period of record unemployment in America?  Do they not serve as a reminder to Wall Street, and also Main Street, that there is something much larger in the scheme of things, something more enduring, like the fabric of national values and ideals, that needs to motivate and energize private lives?

Half a century ago, President Kennedy’s words were a call to a generation — what has been dubbed the greatest generation — who inherited the governance of a world it fought to keep free.  Through groups like the Peace Corps, and in their entry to other forms of public service, Americans answered that call.  The fire from this torch spread to other countries, too, like Canada, where a political phenomenon known as “Trudeaumania” swept a new kind of energetic politician into office in 1968.  Pierre Elliott Trudeau was known as Canada’s JFK, and another astute Kennedy admirer in Keith Davey, a Canadian senator, helped to keep Prime Minister Trudeau in power.  Mr. Davey passed away this week, just short of the half-century mark of the great speech that so inspired him, as he often reminded in the course of a friendship with this commentator that lasted several decades.

But the most remarkable aspect of these great words is that they remain a trumpet that rallies every succeeding generation, each of whom discovers on its own what the Kennedy generation and others have learned and taught again: that we are all ennobled when we follow a purpose greater than ourselves, when we seek to give rather than to take, and when we see the efforts and success of the institution of government in the great experiment called democracy tied inexorably to our contributions.

Lessons from the Botched EU Bailout and other TARP Follies

Ordinary people from Athens to Little Rock have had it with a bloated system where politicians take care of themselves, along with insiders and powerful interests when they run amok, and leave the public to scrimp, sacrifice and struggle to pay more debt.

As we predicted, the stock-lifting EUporia over the European rescue plan that arrived last Monday morphed into market-pounding fear and skepticism by Friday. The Euro currency is pretty much in a shambles, too.  It looks like another huge bailout plan, like the initial incarnation of the TARP that was supposed to buy up billions in toxic assets, has been widely rejected as impractical and one that cannot possibly perform as intended. European leaders and central bankers have been left scratching their heads and wondering what hit them after they emerged from their Chamberlain moment, having pronounced their version of economic peace in our time.

The problems of Europe, and indeed, other nations that have too long been on a debt joy ride to fantasyland cannot be solved by either the profligacy of more debt accretion or the draconian paternalism of the IMF. When economies need to grow, you can’t tax them and shrink them into expansion, which is what they need to pay off their debt.  The formula devised for Greece, which will see paychecks decimated, pensions slashed and taxes hiked, can have only one outcome — and it is neither pleasant nor a track to the growth that is needed.  Nor can you push a country into greater debt for its salvation any more than you can make an addict recover by giving freer access to the source of the substance abuse.

TARP-type bailouts have become a flashpoint not just for the markets but also for the electorate.  On this Super Tuesday of U.S. primaries, look to see Washington insiders who have been connected to these massive bailouts take a big hit.  By tomorrow, one-time Pennsylvania Republican Senator, turned Democrat, Arlen Specter, will have lost his chance for a sixth term.  Rand Paul, who has become a darling of the Tea Party, the quintessential anti-bailout brigade, is likely to receive the Kentucky Republican nod for the Senate.  Democratic Senator Blanche Lincoln will probably lose her bid for renomination in Arkansas.   Last week, it was three-term Republican Senator Robert F. Bennett of Utah who was turfed out by his party. This is just the opening act for the main event that will come in November, when the full effects of what we have dubbed turbo populism will see some seismic shifts in the political landscape and in the culture of excess that has come to define it.

Ordinary people from Athens to Little Rock have had it with a bloated system where politicians take care of themselves, along with insiders and powerful interests when they run amok, while leaving the public to scrimp, sacrifice and struggle to pay more debt.  They know that approach is fundamentally corrupt and cannot be sustained either by precepts of ethics or principles of economics.   That is the lesson of the bailout backlash in Europe and the anti-TARP movement in America.

Those in positions of power who ignore it do so at their peril.

The Dodge Rahm

The recent flap involving the White House chief of staff is another sign that President Obama needs a Paul Volcker of the bipartisan world – – someone whose stature will command instant respect, who can act as a trusted counselor to the President.   It may be one of his last chances to avoid an even more costly episode of unintended acceleration into political disaster.

There is a universal law of organizations, especially political organizations, which some of us who have counseled them over the years have come to observe.  When the trusted advisor begins to attract the kind of press that puts the boss in a bad light, someone has a problem.  And it’s usually not the boss –unless he lets it.  The latest in a growing list of issues involving White House chief of staff Rahm Emanuel came to light in a column by Washington Post political reporter Dana Milbank,  who made the point that “Obama’s first year fell apart in large part because he didn’t follow his chief of staff’s advice on crucial matters.”

Since it is Mr. Emanuel who was supposed to be giving the advice, not many besides he would know whether it was taken or not.   In any event, this is not something that is going to assist a White House that is more and more looking like a victim of unintended acceleration into disaster, along with a Democratic Party that seems unable to steer away from calamity.  As both the real and symbolic head of the Democratic Party, Mr. Obama needs to think about the picture that is emerging:  The Senate loss in Massachusetts. The Governor’s scandal in Albany.  The demise of Ways and Means chairman Charles Rangel (D-15th NY).  The forced resignation of first-term representative Eric Massa (D-29th NY).   A slow motion train wreck involving health care reform also features prominently on the list.  Cap and trade seems almost buried and gone.  The President’s approval ratings have plunged.  The popularity of his party is foretelling of a November blowout.  Apart from spending trillions in bailout packages to deal with problems that were not of Mr. Obama’s making, there is pitifully little to show on the domestic side for the first year of his term.  On the foreign file, certain presidential trips, like the one to China, seem not to have been worth the cost of the fuel.   Of course, not every problem can be laid at the door of the Oval Office.  But issues, especially the ones that deal with tricky concepts of ethics and competency like those noted above, can quickly morph in the minds of voters, leaving the occupant of the White House often tarred with the blame.  This is especially true during a time of increasing anti-incumbency attitudes and mounting populist sentiment.

As White House chief of staff, a post which many contend is something akin to the role of an unelected prime minister, Mr. Emanuel is not exactly a remote bystander in all of this.  Our own views on the subject of his performance and probable early exit were set out late last year.  One gets the impression that the growing litany of failures and setbacks is prompting some rewriting of history or at least an unbecoming distancing from the decisions themselves.  The fact remains that no chief of staff in any administration worthy of respect would be caught with these kinds of comments connected to him.  He has not denied the thrust of Mr. Milbank’s column.  It’s another red flag that should not be ignored by a president who has already missed some important ones over the past year.

A positive step for Mr. Obama at this point would be to re-think the merits of the Chicago school he brought with him into the White House.  When other presidents have been faced with a loss of momentum, they have called upon respected senior adults to help with turning things around.  David Gergen comes to mind in that role for President Clinton.  Howard Baker was brought in to bring direction to the Reagan White House after the messy arms-for-hostages debacle.  Mr. Obama could use his own version of such a trusted advisor in the West Wing now.

What is needed is a Paul Volcker of the bipartisan political world — someone whose stature will command instant respect inside and outside the White House.  The purpose would not be to replace Mr. Emanuel, but it would be the kind of person who could take over that function if it became necessary.  With a little luck, he or she even might have developed an ability to restrain their predilection for profanities, bone-headed comments and flights of ego, all of which are becoming too closely tied to the staff of the Obama White House.

Coming into office, Mr. Obama wisely made much of his desire not to become tied to pre-scripted viewpoints or inside-the-beltway thinking.  He understood that advice from outside was an important tool for testing the accuracy of the political compass and maintaining a healthy perspective.   More of that thinking, both from Mr. Obama and from those who advise him, is needed now if an even more costly episode of unintended acceleration into political disaster is to be avoided.

The President has plenty of challenges and problems hitting him from outside.  He does not need them coming from the office next door.

Outrage of the Week: The Day the Supreme Court Expropriated Democracy

outrage 121.jpgThe greatest experiment in democracy the world has ever known, made great because of its concept of checks and balances, is about to become bought and paid for with checks from Walmart and the like.  It is a decision that is tailor-made to place a heavy coat of cynicism on a public already overly clothed in suspicion.

Having hijacked the U.S. Presidential election in 2000 in what even many conservative judicial scholars rate as one of the weakest and most contradictory legal rationales in U.S. Supreme Court history, the remnants of this group have now largely expropriated the democratic process and handed it over to the giant American corporation.

The putative privatization of political campaigns occurred with the 5-4 decision of the court handed down this week in Citizens United v. Federal Election Commission.  This was the case where Chief Justice Roberts, who eventually supported striking down the limits the law previously imposed on spending, thought the matter to be so important that he took the rare step of scheduling oral arguments during the court’s vacation period this past summer.  Some have drawn conclusions about what that says for the court’s willingness to do the bidding of moneyed interests.

Justice Kennedy, writing for the majority, which included the Chief Justice along with Justices Alito, Thomas and Scalia, cited the right of free speech in striking down existing limits on political spending by corporations (and other organizations).  But the First Amendment ought not, we think, to confer the right of any organization or group of organizations to have their opinions stand first and foremost.  This is precisely what will happen now that the floodgates are opened to unlimited election advocacy spending.  It will be the organization with the most money whose opinion will count the most, as anyone who has ever been involved in the political process knows.  Ask any candidate about the importance of money and advertising in politics today.  Ask what would happen if they were facing an opponent whose views were supported by a blank check.  How much chance would their voice have of being heard in the real world, which is clearly not the same one these five justices inhabit.

It can be argued that the decision also frees up limits on other groups and allows their voices to be heard more fully, creating some kind of abstract marketplace of ideas where the public ultimately weighs and determines the best political decision.  But this is a little like a naive first-year law student praising a legal system where it is held that all people have equal access to justice and that a plaintiff represented by a single country lawyer has the same chance to prevail as a giant corporation with thousand-dollar-an-hour attorneys backed up by armies of associates, investigators and paralegals.  The theory is nice, but talk to someone who has lived the experience and a different picture generally emerges.  Like a giant gorilla on a teeter-totter, money is almost always the greatest de-leveler in any electoral or judicial park.

This decision risks making political parties irrelevant; the real players will be the guys in the suits on K Street who will be stacking crates of cash behind their clients’ causes.  Lobbyists will have a field day; they will become in many ways a shadow government and Washington’s most influential policy makers.  Imagine that kind of power, if you will, in the hands of the big banks or the AIGs of the world, who brought you the worst financial meltdown since the Great Depression.  Imagine how much more banks will be able to enrich themselves by blunting the role of regulators and making sure, if Wall Street screws up again, it will have ready access to even more public bailout funds.  Imagine a world where drug companies and chemical producers no longer have to worry about a watchful FDA or other agencies who are supposed to protect consumers from faulty products.

In the majority decision, Justice Kennedy forcefully asserted “This Court now concludes that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.”  Perhaps he has forgotten one of the lessons of Watergate.  Some thirty-five years ago, at the height of that scandal, it was revealed that more than 400 major U.S. corporations, including top names such as Gulf Oil, Exxon, Mobil and Lockheed were found to have made secret payments to foreign government officials around the world.  The Corrupt Foreign Practices Act was passed by Congress to ban such payments in the future.  Would a Congress where the campaign influence of these companies had no bounds pass such a law again?  Might it even repeal this one?

In a day where the power of large corporations and other organizations more and more outweighs the voice and interests of the ordinary individual, it is often during elections – and only during elections – where that voice has any real chance at all of being counted.  The growing size of entrenched interests and the frustration people feel in the face of established power lies at the heart of what we call turbo populism.  People do not want to see more great concentrations of power mounted against Main Street.  They are looking desperately for the opposite at a time when they have already had to pay too much for the abuse and incompetency of both Wall Street and Washington.  The decision is tailor-made to place a heavy coat of cynicism on a public already overly clothed in suspicion.

The Supreme Court did not hear that voice this week.  It heard only the self-aggrandizing views of those with a great deal of power and wealth who are determined to grab yet more. They are now able, unchecked, to use elections for that purpose.

Twice in the span of a decade, self-described conservative guardians against judicial activism have intruded into the democratic process on a scale no liberal judge would ever dare. The first effort shaped the outcome of a presidential vote.  Now they have set the stage for the wealthiest to shape all future outcomes.  The greatest experiment in democracy the world has ever known, made great in large part because of its concept of checks and balances, is about to become bought and paid for with checks from Walmart and the like.

Fear for the long-term health of democracy is an appropriate reaction to this decision, as Justice John Paul Stevens eloquently adumbrates in his passionate minority opinion.  But outrage quickly follows to fuel public demands for change and efforts to curb the threat this decision portends.

Fortunately, the largest corporations are still governed by securities regulations that can set out what decisions shareholders themselves are required to make.

Mr. President, give the SEC a call.

Freedom and the American Thanksgiving

washington-thanksgiving-proclamation-s

Freedom, in either its political or economic  appearance, has never been a lasting guest in the American home when it was merely taken for granted.

The celebration of Thanksgiving in America is rooted, more than anything, in the blessing of freedom and opportunity.  Those were the hallmarks that beckoned the first settlers to the far off shores of the new England.  They are  what is celebrated in the uniquely American way each year at this time.

Through evolution and revolution, titanic wars and epic financial upheavals, America has come to define ideas like a free market, individual choice and accountability among those who exercise power – whether in the economic arena or in the political.  In many ways, these principles have become a model for much of the world.   But their ascent has not been without cost.  And the need to defend these values has, time and again, come with a painful price tag.

As America contemplates its blessings this Thanksgiving, it is timely for it to consider whether it serves the cause of political freedom by propping up corrupt regimes, such as the one that rules Afghanistan today, where, right now, thousands of U.S., Canadian, British and other NATO military personnel are placing their lives on the line, and where so many have paid the ultimate price.  It is also wise to consider whether the idea of free market capitalism is well served by the constant enrichment of the regime in China, which promotes not a capitalism which extols individual rights and freedom of choice, but an authoritarian capitalism based on secrecy, tyranny and force.  This system was well illustrated earlier this month when President Barack Obama visited Beijing and where his “media conference” was not permitted to see a single question asked.  That is the way in China; it is not a model America looks good in adopting.

It is also time to ponder whether America is well-served by its financial system, which, after blundering into the worst crisis since the Great Depression and needing a head-spinning succession of taxpayer bailouts (with perhaps more to come), is rewarding itself with billions in bonuses while millions of Americans are losing their jobs, their homes and their dreams.  Then there is the Federal Reserve system, which appears more and more to view its role as pushing out trillions to keep Wall Street happy, while Main Street is left to cope under an almost unfathomable mountain of debt and a coming gale of inflation from which there will be no shelter.  Far from preserving the freedom of Americans in recent months, these institutions seem increasingly to have made them hostages to profligacy and misjudgment.

From the battered Pilgrims at Plymouth Rock and the courageous Rangers, Marines and service personnel in Iraq and Afghanistan to a struggling middle class and the steadily vanishing members of the Greatest Generation too often left in poverty and fear, Thanksgiving is a lunch that has never come free.  And freedom has never been a lasting guest in the American home when it was merely taken for granted.