It would be hard for even the most Panlgossian among us not to be a little skeptical about the prospects of long-term stability and peace between Israel and the Palestinian factions. But this week’s extraordinary gathering of Middle East powers in Annapolis gave a glimmer of hope. What was most impressive about it was the relationship of mutual respect that seems to have developed between Israeli Prime Minister Ehud Olmert and Palestinian Authority President Mahmoud Abbas. The two leaders have been meeting secretly, behind the scenes for a while now. You can tell they have a genuine rapport. Both tread on dangerous ground, and the prospect of alienating their own constituencies is real. 
There is always risk in turning away from conventional wisdom and charting a new direction. In that they follow in the courageous footsteps of Menachem Begin and Anwar Sadat, who also took a giant leap over past battles to make a better future. That, too, culminated in an historic gathering in the United States, at Camp David in 1978. America, at its best, has been a shining force for peace in the world. It will be again.
President George W. Bush and Secretary of State Condoleezza Rice also served in a noble tradition as peacemakers as only real leaders can. They deserve the praise they are receiving from many political and geographic quarters.
There is much to be encouraged about by those who gathered at Annapolis from distant and diverse lands and much to be hopeful about when men and women face each other with weapons of understanding, good will and a desire to make peace.
We’re taking a few days off to celebrate with our American friends and family. Finlay ON Governance has a remarkably diverse readership from literally every part of the globe. So whether you’re in Australia or Spain or Japan or the Netherlands, it would be nice to think that you, too, will take a moment to share in a bit of thanks –remembering that there is much to be grateful for, just as there is much worth standing up to preserve.
The photo on the left, by the way, is of the original proclamation, issued by President George Washington on October 3, 1789, denoting a day of Thanksgiving to observe “…the civil and religious liberty with which we are blessed.” I have passed by the building near Wall Street where he signed it on many occasions and still get a thrill each time.
To paraphrase Wordsworth, Washington! Thou shouldst be living at this hour: America hath need of thee.
All the best, wherever you may be.
J. Richard Finlay
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.
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 dot.com 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.
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…)
It takes something of a rare talent to pull off losses that soar into the billions just after reassuring the market and be paid $48 million for the privilege
He had a pretty much handpicked board and was paid something close to a king’s ransom in compensation. No one could argue that the company was bogged down by directors who were excessive in their corporate governance pursuits. And when Merrill Lynch CEO E. Stanley O’Neal called subprime defaults “reasonably well contained” last June, investors were doubtless encouraged. But then came along that rather large leak in earnings in the form of a third-quarter loss of $2.3 billion and a further $7.9 billion charge for failed credit and mortgage-related investments. (more…)
