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.

Brazil Interview on CEO Pay

My interview with AE Investimentos in Brazil on the hot topic of CEO pay is carried in its December issue.

Executive remuneration and the role it has played in promoting the excessive risks and leverage that helped give birth to the current economic crisis are placing boards and pay rewards under a microscope as never before. The story is one more example of an increasing global interest in curbing pay abuse and its wider consequences.

An excerpt from the interview in its original Portuguese follows below (click to enlarge):

In the New York Post

Our comments about Citigroup’s hapless board of directors made their way into the New York Post today in a piece by business journalist Paul Tharp. Some of the observations first made here at Finlay ON Governance were reflected in the Post’s editorial, as well.

The Post’s story got quite a lift, appearing in the headline of the newspaper which was much discussed on CNBC this morning. Here is part of what was quoted:

Citigroup’s board of directors increasingly resembles a first-class sleeping car on a train wreck that just keeps happening,” said J. Richard Finlay, head of the Centre for Corporate & Public Governance.

“Almost whatever it does, it is too slow and too late.

“It can take months for Citigroup’s directors to clue into what others in the real world have known for some time.

Noting that Citi’s stock has lost more than $133 billion this year alone, Finlay said, “Citigroup’s board has demonstrated that it has not been on top of any major issue in more than a decade, much less ahead of it.”

You’ll be seeing some significant changes in Citi’s boardroom in the not-too-distant future. It’s one thing for directors to be portrayed as sleeping on the job. It drives them crazy when they are presented as clowns.

Is Canada Getting Real with White-Collar Fraudsters?

I was interviewed by The Montreal Gazette yesterday in connection with the 12-year sentence handed down to Vincent Lacroix, the former head of Norbourg Asset Management. He was convicted of swindling more than 9,000 investors out of some $115 million over five years. It is one of the stiffest jail terms of its kind in Canada, which has been receiving a lot of criticism in recent years, including on these pages, for its lackluster approach to fighting boardroom crime.

Here’s some of what the story noted in today’s Gazette:

The head of a think-tank dedicated to raising standards of ethics, transparency and accountability in major corporations and public institutions agreed. A sentence of this size might begin the long process of restoring Canada’s reputation when it comes to fighting white-collar crime,” said J. Richard Finlay of the Centre for Corporate & Public Governance. Long jail time tends to get the attention of potential fraudsters,” he said from headquarters in Toronto. “It also gives some confidence to investors that somebody is looking out for them and making sure that the law means something – even when it reaches into the boardroom.

Maybe all of Canada’s white-collar criminals should be tried in Quebec. They’ve gotten off pretty lightly in the rest of Canada. Indeed, David Wilson, head of the Ontario Securities Commission, has boasted that Canada takes a more compassionate approach to dealing with criminal conduct.

Fortunately, Quebec authorities haven’t received this memo yet.

RIM’s Real Stock Option Problem: Maybe It’s Giving Out Too Many

When a board gets to the point where it feels it needs to have a widespread automatic stock sales program, maybe it’s a sign that it’s giving out way too many stock options to insiders

I’ve been receiving a number of calls from the press regarding Research In Motion’s new automatic stock selling plan for insiders. RIM has a problem, it seems, in managing its abundance of insider wealth. With so many directors and officers having so much stock –much of it gained by an extraordinarily generous stock option plan that saw millions of shares awarded through option grants– it has had to set up a program to sell insiders’ shares in a way that avoids any hint of impropriety. RIM is still recovering from the backdating scandal that involved the company’s co-CEOs, the CFO and a number of directors. For several months in late in 2006 and into 2007, insider stock trades were frozen because the company could not produce accurate financial statements due to option-related accounting problems. During that period, co-CEOs Jim Balsillie and Michael Lazaridis exercised more than 750,000 options between them alone. And that was just a fraction of their total awards. We’ve had some thoughts on RIM’s accounting/backdating fiasco on a number of occasions. This latest move, which will see nearly $400 million worth of stock sold over the next 12 to 18 months, is no doubt also intended to help shore up RIM’s image with the SEC, which apparently is still investigating the backdating episodes. Finlay ON Governance was the first to raise the issue of RIM’s noticeably deficient corporate governance practices that were also implicated in the backdating scandal. The company has since scrambled to repair some of its board practices, as well.

You may recall at the time the company produced the report on its internal investigation (which we thought might as well have been written on Swiss cheese because of all the holes it contained in the form of unanswered questions), Mr. Balsillie, RIM’s co-founder, who, as his company’s bio boasts, holds the Canadian chartered accounting profession’s highest certification, and Dennis Kavelman, RIM’s former CFO, who is also a professional accountant by training, both claimed not to know that undisclosed backdating was a no-no under accounting rules. RIM’s board, some of whose members also received backdated options, did not keep complete records of stock option decisions and transactions, according to the internal report. They never explained who approved the backdating for directors.

As a rule, investors like to see management and directors buying stock, not selling it. This is especially the case in a company where most of the top people are still under 50 and aren’t planning to leave anytime soon. Insiders selling significant blocks of their company’s stock en masse is not something the market sees very often and is seldom prepared to overlook.

Here is an excerpt from what I told today’s Financial Post:

I am never a fan of companies where there is a lot of insider stock selling. They are the leaders. Would they like other stockholders to sell too? The market is entitled to view mass selling by insiders as an indication of a lack of confidence in the future, since, if the price of the stock is expected to rise, a rational investor –even an insider– would not want to sell.

The fact that the plan is being unveiled at a time when RIM’s shares stand at record levels might prompt some prudent investors to wonder if the company’s insiders have a less than bullish vision of the future. Maybe RIM’s shareholders should begin to contemplate their own systematic sale of shares.

One final thought for investors to ponder: When a board gets to the point where it feels it needs to have a widespread automatic stock sales program, maybe it’s a sign that it’s giving out way too many stock options to insiders.

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.

Outrage of the Week: The Crumbling Pillars of Public Confidence

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Merck pays out nearly $5 billion to settle Vioxx claims, Yahoo incurs the wrath of legislators, and another poisoned child’s toy made in China is recalled. The growing credit market implosion threatens recession. These are the predictable consequences of the subprime leadership and ethics in our boardrooms and in our institutions of government over the past number of years.

The Outrage generally prefers to focus on a single event. This week, however, there was a common theme among several events. There was the Merck $4.85 billion settlement over its Vioxx debacle. Next, there was the appearance of Yahoo CEO Jerry Yang before the U.S. House Foreign Affairs Committee to answer questions about his company’s turning over information that led to the arrest and imprisonment of Shi Tao, a Chinese journalist and political activist.

The week ended with revelations that yet another toy made in China contained toxic chemicals and with officials ordering that Aqua Dots, distributed in North America by Toronto-based Spin Master, recall more than four million units.

What these incidents share is a betrayal on the part of the companies and leaders who could have done better, but failed miserably in their ethical performance. Merck is one of the world’s leading drug companies, yet it continued to market this highly profitable product even after company officials were warned by their own medical researchers of serious problems.

The company pulled Vioxx off the market in 2004, citing increased cardiac risk. But, as the Wall Street Journal reported at the time, Merck had earlier indications of serious problems. A March 2000 internal email shows company research chief Edward Scolnick warning that cardiovascular events “are clearly there.” Still, Merck continued to deny any link between heart attacks and Vioxx.

Yahoo is a company founded and headed by a brilliant billionaire who one might have thought had enough money and youth to still have a social conscience. But doing business in a multi-billion consumer market headed by a corrupt authoritarian regime was too tempting to resist, it seems. And so it was that Yahoo became an adjunct of the Chinese secret police –spying and snitching on its customers and thereby poisoning a name and a brand that had become known world-wide for its sense of innovation and exploration of the limitless knowledge held in cyberspace.

We don’t know who is really behind this latest toxic threat to our children. And maybe that’s the real problem here. Distant manufacturers operating under opaque regulations and dubious enforcement, vague distributors, off-shore companies and the lure of huge profits all conspire to put health and safety way down the line and out of the mind of any responsible entity. These kinds of incidents have happened too often in recent months to be a mistake. They reflect a cultural and ethical deficit endemic to the way global business is being done with despotic regimes.

Among the factors that are causing a crumbling of the pillars of confidence, the subprime mortgage scandal also figures prominently. Here, once again, the too-clever-by-half characters who concocted these elaborate schemes and got paid a sultan’s treasure for their efforts have turned out to be not quite as clever as they wanted us to think. It is unlikely they will have to repay any of the stratospheric bonuses they were receiving while creating these artifices that, like the bubble and the Enron-era accounting shenanigans, foolishly attempted to defy the rules of basic economics and common sense as only those infused with the curse of hubris will do.

And the figures touted for their wisdom and vigilance who are supposed to be monitoring the actions of these other bright fellows whom history has shown to have gotten carried away with themselves on more than a few occasions, seem not to have been as wise and as vigilant as advertised. Having underestimated the effects of these toxic credit toys before with assurances that the subprime mortgage defaults would not intrude into the broader economy, one wonders if they are any better prepared for the wider economic crisis that seems to be looming.

There will be many casualties before the full extent of the great unfolding 21st century credit debacle is over. There have already been a few CEOs who are taking a very well paid early retirement. More will follow. Some companies will not survive. The stock market will continue to experience unsettling jolts, like its more than 600 point drop this week. But, unfortunately, it will be the ordinary consumer —not the central bankers or the treasury luminaries or the credit agency raters or the boardroom directors who permitted this fiasco and were blind to its early signs— who will suffer most from the turmoil and set backs that lie ahead. So too will the idea that we can look to the icons at the top to do the right thing because their wealth and privilege bestow on them a higher level of accountability to do the right thing. That moral touchstone seems to have vanished, along with the primacy of the common stakeholder —something that has been a recurring theme at Finlay ON Governance.

These events have been the predictable consequence of what has amounted to decidedly subprime leadership and ethics in our boardrooms and in our institutions of government over the past number of years. They are a harbinger of the further crumbling of the pillars of public confidence and trust, which make them our choice for the Outrage of the Week.