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.

Who Leaked the News About the Goldman Settlement?

When the SEC filed civil charges against Goldman Sachs last April, we postulated that the end game would be:

…one of those vague and disappointing resolutions for which the SEC has become famous, as discussed here,  whereby the defendant company’s shareholders pay a pile of money as a penalty for what management did (but for which it does not admit wrongdoing) along with some tinkering on the corporate governance side to make it look like more was done.

That seems to have been precisely what happened today with Goldman agreeing to pay some $550 million to settle the case — and without admitting or denying the charges, thanks very much.  What strikes us even more than the fact of the settlement — where shareholders will have to cough up the half-billion dollars, as opposed to management having to pay anything out of the huge compensation they made when they were making the decisions that resulted in the penalty — is that news of the deal was obviously leaked during the trading day.  A huge spike in volume occurred late Thursday while the NYSE was open and before the formal announcement was made. It was too much to be on the basis of speculation or idle gossip (see chart above).

The Goldman case was just one more example of why it often appears to ordinary  investors that the market is a rigged game where those with inside information are the only ones who can profit.  The timing of the settlement and what occurred just before it will only add to that suspicion.

Someone at the SEC or Goldman talked, and others made quite a lot of money on the knowledge.  The idea that there would be an impropriety connected with the timing of the SEC settlement with a company it accused of wrongdoing and lack of disclosure is more than ironic.  It is an outrage that needs a closer look and some fast answers from both the regulator and the company.

Goldman’s Exhibits of Wall Street Insincerity

Collectively, in their pivotal appearance before Congress, Goldman’s top performers could not muster the sincerity, transparency or gravitas of a used car salesman.  It is unlikely to play well on Main Street.

Nothing illustrates the folly and arrogance of Wall Street more than the appearance of the Goldman Sachs executives who testified yesterday before the Senate Permanent Subcommittee on Investigations.  Rarely has such a group of men (of Goldman’s seven past and current employees who appeared as witnesses, all were men) so graphically confirmed Main Street’s jaded image of Wall Street.  Collectively, the best Goldman had to offer in their fields could not muster the sincerity, transparency or gravitas of a used car salesman.  Their failure to give clear answers even extended to a refusal to acknowledge the duty to act in the best interests of clients.  To many watching the performance, the only conclusion is that they are so used to acting in their own interests that they are unable to understand a larger sense of duty.  This is often what happens when great wealth arrives to youth before maturity and wisdom have made an entrance.

Whatever skills these people were paid their millions for, memory did not seem to be among them, with so many constantly claiming they did not know or could not remember key facts and events. Goldman’s CEO Lloyd Blankfein offered little more in his grasp of details.  One might have expected that someone who was paid well in excess of $100 million over the past five years and heads what is widely regarded as the world’s preeminent investment banker would be able to manage the tasks of stringing words together in complete sentences and in persuasive thoughts.  As the English language is not yet something Wall Street has learned to monetize or short, those skills do not appear to matter there.  They do to Main Street.

If, having played a central role in the worst financial meltdown since the Great Depression and needing the injection of hundreds of billions in public funds to keep it solvent, Wall Street — and especially its most illustrious icons — cannot manage to explain what they do and why in a coherent fashion to the satisfaction of Main Street, if they cannot project a sense of ethics and purpose that goes beyond self- interest, if their values appear disconnected from reality and the value they add to society seems only synthetic and contrived, the need for fundamental reform in both the culture of these institutions and the laws that regulate them is more urgent and far-reaching than anyone has yet imagined.

Goldman’s Kryptonite?

How is it Goldman felt it necessary to warn shareholders that enforcement actions can have a negative impact upon the company’s business in the abstract, but apparently felt no need to reveal the material fact that it had been formally alerted by the SEC to an investigation?

In the greatest financial meltdown since the 1930s, few industry giants seemed as favored as Goldman Sachs.   At a time when others where failing from a combination of folly and misjudgment, Goldman seemed to be imbued with superhuman qualities, including the ability to leap over the tallest obstacles and dodge bullets that were taking out one icon after another.  Goldman, to many, and especially to itself, was Superman.  But even the Man of Steel has his foil, and if the civil charges brought by the SEC are proven, kryptonite for this Wall Street marvel came in the form of a 27-year-old French-born employee and a bizarre mortgage investment fund called Abacus 2007 – ACI that was designed to fail.

The complaint asserts, among other matters, that Goldman failed to make full disclosure about the intent of the fund and how it was designed.  In the best case, the truth about the charges will eventually be determined.  On the other hand, perhaps there will be one of those vague and disappointing resolutions for which the SEC has become famous, as discussed here,  whereby the defendant company’s shareholders pay a pile of money as a penalty for what management did (but for which it does not admit wrongdoing) along with some tinkering on the corporate governance side to make it look like more was done.

But right now, another, and less disputable, fact should be raising questions.  Goldman failed to disclose that it was being investigated by the SEC for possible civil fraud charges, which it was formally made aware of in July of last year when it received the Commission’s “Wells” notice.  Goldman knew that would likely be material information shareholders would want to know, because the company said as much to investors just last month.

In its 2010 10K  statement published in March, Goldman noted that among the potentially adverse impacts upon its business, “investigation by regulators” was a material factor.  The company went on to say:

Penalties and fines sought by regulatory authorities have increased substantially over the last several years, and certain regulators have been more likely in recent years to commence enforcement actions…  Adverse publicity, governmental scrutiny and legal and enforcement proceedings can also have a negative impact on our reputation and on the morale and performance of our employees, which could adversely affect our businesses and results of operations.

How is it Goldman felt it necessary to warn its shareholders that such investigations and enforcement actions can have a negative impact upon the company’s business in the abstract, but apparently felt no need to reveal the material fact (as Goldman itself had defined it) that it had been formally alerted by the SEC to an investigation?   Goldman’s CEO, Lloyd Blankfein, would have been aware of the SEC investigation during his appearance before the Financial Crisis Inquiry Commission in January.  Was the Angelides Commission?   Should it have been?  Answers are needed if the panel and its mission are to maintain any credibility.

Perhaps this is another telling sign that Goldman is really mortal after all and that its attempted leaps into the air can bring about the same unintended consequences that they do for anyone else.  At the very least, it raises the question about what more Goldman knows that it is not telling the investing public at the very time when confidence in its reputation requires full disclosure.

Godman Sachs?

One of the dangers of excessive pay is that it tempts CEOs to think that maybe they really are god-like superheroes.  But few have actually boasted about the role like Goldman Sachs’ s Lloyd Blankfein.


It has been a consistent view of these pages, and one much longer voiced by its author over some two decades, that executive compensation poses a number of systemic risks to companies, to the institution of capitalism and to society generally.  One of those risks, the effects of which is being experienced in the economic slowdown today, is that stratospheric compensation tends to distort how CEOs view the world and tempts them to venture into unwise and perilous territory (see, for instance, 40-to-1 debt leverage; unbooked credit default swaps and subprime mortgages).  Some are inclined to believe that they truly are the god-like superheroes they would have to be in order to justify pay levels that swell into the high tens of millions on a regular basis.  Now, we have additional proof for our theory.

Earlier this week, the Times of London reported Goldman Sachs CEO Lloyd Blankfein, whose compensation in 2007 amounted to more than $70 million, as saying that he was doing “God’s work.”  Goldman has always been filled with heavy-hitters who go on to exercise considerable sway in government (see Henry M. Paulson Jr.).  It seems the influence has taken on a decidedly out-of-the-beltway, even out-of-this earth, tone.

It is difficult enough for Goldman to justify the compensation it regularly doles out.  To add to that PR nightmare by taking on the role of an emissary from God may prove to be more than even this fabled company can pull off.  Such talk only serves to divide Wall Street from Main Street further at the very time when public confidence in America’s financial institutions, and respect for its captains, still remains fragile.

Paying millions to a CEO like Mr. Blankfein, or any number of his contemporaries, can get you, well, a very highly paid CEO.  But can it get you a leader who personifies both common sense and good judgment and is able to avoid making stupid statements that cause him and his company to be the laughing stock of late-night comedians and op-ed page commentators?  That is the question, rather less for heaven than for earth, where the generous American taxpayer, and not Divine providence, is most responsible for placing Goldman Sachs, and the Wall Street economy it depends upon for its success, back on track.

Watching The Wall Street Journal Watching Us

Finlay ON Governance made it into the WSJ’s online edition yesterday in connection with our post below about Goldman Sachs –or at least the flattering portrayal of that institution by The New York Times. The Rupert Murdoch effect is already showing. I was quoted in the New York Post a few days ago too.

I often find online reporters and commentators tend to be a little more clever and quicker to notice something than their print counterparts. Certainly, their headline writing abilities are better –and they usually get to write them themselves –unlike the print side of the business.  I seemed to have an almost unbroken record of having the lamest headline writers for my print op-ed columns over the years, despite the fact that I used to spend a lot of time coming up with what I thought was just the right short mix of attention grabbing and informative words. No, each time some anonymous copy editor would rewrite the headline and turn it into something I would have to make sure even my mother would never see, lest she think my writing skills had taken a sudden plunge into the pool of the banal. The headline written by MarketBeat columnist David Gaffen for the story above, is, well, pure gold.

There is a rumor that the Journal’s online edition, one of the best features of its kind on the Internet hands down, may become free. I’ve been a subscriber since the beginning. It would be nice to see it opened up to everyone in the same way The Times stopped that silly extra charge to read its columnists. The 21st century economic model for the Internet has its origins in a ground-breaking invention of the early 20th century: the radio. Then, the model was to maximize the audience size with interesting content and make the money with advertising. The subscription-based Wall Street Journal online edition, by the way, currently contains advertising of both the traditional static and flash motion varieties. A free online Journal could tie its content in with all kinds of existing sites and create a Google-like omnipresence of a respected news brand that would no doubt pay off handsomely in advertising dollars.

Mr. Murdoch seems to be more aware of the benefits of this economic model than a lot of the old guard executives at the paper who are half his age. I have a suspicion he is leaning toward freeing up access to the WSJ online. I also have a suspicion that if that is what he wants, that’s what’s going to happen.

Goldman Sachs –And Hold the Sugar

There was one of those syrupy pieces in The New York Times business section the other day that I can read only so long before an overdose of sugar in the blood forces me to look for the antidote. This time, it was about the wonder and magic of Goldman Sachs, which, they say for decades, “has churned out a golden list of corporate executives and statesmen, wealthy financiers and nonprofit managers.” Maybe so. But the idea that these are supermen who glide above the earth and only touch the ground as a courtesy to convention is a bit much.

Robert Rubin was no better a secretary of treasury than a lot of his predecessors who had no financial background at all. And his return to Wall Street so soon after that stint raised a few eyebrows. It’s really not supposed to be that seamless a transition. Governor John Corzine spent more than anyone in history to win a seat in the U.S. senate, which he gave up after one term and a rather lackluster one at that. He then threw record more wads at the New Jersey governorship. He seems best known today as the governor who forgot to wear his seat belt and just narrowly escaped death. To me, he always seemed to be a man who had a problem articulating what this great drive to serve in public life was all about. Current Treasury Secretary Henry Paulson is spending a good deal of his time contradicting what he said earlier, like how the subprime mortgage meltdown would not affect the broader economy. All his Goldman experience didn’t help him see that one coming, or the falling icon of market capitalism –the American dollar. It can be painful to listen to him in an unscripted moment, too. Then there is Joshua Bolten, another Goldman alumnus, who currently is chief of staff to an unpopular president now facing a domestic economic downturn to cap off what is probably the greatest foreign policy reversal in American history: Iraq in turmoil, Iran going nuclear, Pakistan teetering on the edge and Russia retreating to Soviet-style belligerence.

Goldman Sachs doesn’t need exaggeration and myth-making. It does well at its job and there are many institutional factors that make that possible. It does not, however, produce genius that is immediately transferable to other forms of economic and political leadership. Quite possibly, we are dealing with human beings after all; smart fellows, to be sure, but they put their pants on one leg at a time, too. It is bad enough when they forget that basic fact. It is a sure road to folly when the public forgets it.