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.

The Banks’ Second Shoe of Deception

Having brought the economy of the United States, and a good part of the world, to the brink of a global depression, the American banking system has now unleashed a second scandal.  This one involves an epidemic of cheating and lying in court filings by those handling home repossessions.  It has been happening for many years.  It has worked very well for the banks.  And it would have continued to do so, had a few judges not decided that, in an economy so decisively affected by what happens in the housing market, it might be a good idea if bank representatives were actually telling the truth.  What a novel idea.

Evidence increasingly shows that in tens of thousands of cases, the bank employees signing foreclosure documents had no training and possessed no knowledge of the underlying facts.  They were just there to sign their names in order to give a veneer of procedural fairness to the process.  In one case, an employee of GMAC has admitted under oath that he typically prepared 400 foreclosures a day and that, contrary to what was attested in his sworn statements, he did not know any of the details about the cases.  Once again, as with the toxic investment vehicles they created, it appears that much of the ethically challenged banking sector wasn’t really interested in either the truth or in the more far-reaching consequences of their actions.  They were interested only in cutting corners and making more money.  Their victims this time are not investors and bank shareholders, although many are now beginning to feel unpleasant effects as financial stocks plunge with the deepening extent of the scandal.  It is past and future homeowners who are the object of the bank’s miscreancy.

In most states, bank repossessions have stopped while companies like GMAC, Bank of America, JP Morgan Chase and others, along with government regulators and the predictable cast of lawyers, look at fixing the mess that has been created.  At this point, any further drag on the housing market may well prompt lawmakers and the Fed to look at another stimulus — perhaps even a second TARP — which will obviously be paid for again with taxpayer money.  The previous bailout was made necessary because of widespread banking improprieties.  If there is another one, it will be in no small part because the banking industry in America still has a problem with truth and accuracy.  It is never a good situation when these virtues are found in short supply, especially in banks.  Their absence reflects an industry that still does not get it and prefers to place immediate benefits over ethical conduct and a demand for profits and bonuses ahead of decency and common sense.

It is an industry that continues to be well deserving of the outrage of Americans.

Outrage of the Week: Washington Silent as Dow Plunges [UPDATED]

Panic makes an encore appearance after Wall Street’s record drop.  America’s leaders do not.

The word perilous hardly begins to describe the times.  Much of the world’s economy is only beginning to see daylight after the financial storm of generations.  Trust in Wall Street and the mechanisms of government is at record lows. In Europe, Athens riots on a daily basis and the rest of Greece approaches economic freefall.  The financial health of Spain and Portugal is fragile. The prospect of contagion remains real. Talk of bailouts again abounds.  This time it is governments rescuing one another, with the outcome far from clear as to where or when it will end and at what cost.  World currencies are gyrating in unsettling ways while an eerily upward creeping Libor rate makes an unexpected comeback.  Then, out of the blue, the Dow plunges by nearly 1000-points in a matter of minutes before closing down 347 points.  Panic makes an encore appearance on Wall Street.

You might have thought if there were ever a time for leaders to personally take center stage and be seen, it would be today.  But President Barack Obama did not appear to offer any reassurance.  There were no words from Treasury secretary Timothy Geithner to calm the markets.  SEC chairman Mary Schapiro remained incommunicado, as she has for much of her term.  Her office issued a press release, which will likely  have about the same impact as the commission’s feeble early investigation of Bernie Madoff.

This is not the way to deal with the biggest point drop in the history of the New York Stock Exchange, much less the fragile commodity called confidence. The turmoil on Wall Street and around the world is raising many questions. Answers, not silence, are needed from a nation’s leaders.

Update:  May 7, 2010 10:46 AM ET

Well into the trading day and with no explanation yet for the sudden plunge just short of 1000 points yesterday, volatility now at a 52-week high, and mounting financial turmoil in Europe, neither the President, Treasury secretary or Chairman of the SEC has personally appeared before the cameras or the media to provide any clarifying information or reassurance.  The heads of the NYSE and NASDAQ are pointing fingers at one another and rumors abound that the record drop was prompted by the liquidation of a hedge fund.  World currencies are continuing to experience wild swings and investors, direct and indirect, are beginning to experience a bad case of nerves again. North American stock markets are in the fourth day of a serious slide.

Is anyone getting this in Washington?

The Examiner of Lehman’s Untoasted Boardroom Marshmallows

The court-appointed Examiner chose to continue the same lackadaisical approach to directorial performance and accountability in his search for answers as the directors themselves evidenced in their drowsy drift toward disaster.

A little noted statement in the report of the court-appointed Examiner in the Lehman Brothers bankruptcy reveals the extent of the deference displayed to the company’s former directors.

The Examiner admits in his report that he provided witnesses “advance notice” of the topics he intended to cover and that he allowed them to make use of notes and written statements before the interviews in order to “refresh recollection.” No doubt these were prepared with the assistance of legal counsel, whom the Examiner confirms represented interviewees in the “vast majority” of cases.   Significantly, the Examiner chose not to conduct his examinations under oath, and, if that’s not astonishing enough, no transcripts were ever recorded.  The Examiner preferred an “informal” approach over the formal depositions available to him.

This is how the largest bankruptcy in history conducted its search for information and how Lehman’s directors, who presided over the downfall, were allowed to take part in what amounted to a quest for the truth with all the rigor and intensity of a marshmallow roast – – without the fire.

We have long maintained that directors are among the most pampered class in the business world, accorded by society, the media, investors and the courts a level of deference and respect that has few parallels.  Time and again, it is this approach that has permitted directors to take shelter in the harbor of the disengaged and uninformed, giving rise to the appearance of men and women who, having been lauded in press reports and company statements just days or hours before as experienced and exceptionally accomplished, suddenly adopt the demeanor of amiable dunces in their hapless efforts to explain what happened and why.  This is what occurred in Enron’s collapse and before the fall of the Penn Central Railroad.  The spectacle of Hollinger’s confused directors at Conrad Black’s criminal fraud trial in 2007, where board members appeared challenged even in reading important documents, will also be recalled among astute boardroom watchers.

As we noted well before the company’s demise, and repeated here, Lehman’s feeble approach to corporate governance was well established by its board and the structure and membership it adopted.  It was, in our view, a significant and inevitable contributor to that downfall.  It is an outrage that the Examiner chose to continue the same lackadaisical approach to directorial performance and accountability in his search for answers as the directors themselves evidenced in their drowsy drift toward disaster.

Outrage of the Week: Toyota’s Public Relations Disaster on Wheels

outrage 121.jpgYou would have needed an Olympic-style scorecard to keep track of all the changes made to Toyota’s current and potential recall programs.  What began as an issue involving – or so Toyota said – loose floor mats in some vehicles has morphed into a public relations nightmare caused by faulty gas pedals on Camrys, Avelons and other models, brake problems on Priuses, drive shaft hazards on Tacoma trucks and steering troubles on Corollas.

The company that consistently produced the best selling and most respected brands in the world showed itself to be the gang that couldn’t shoot straight.  Its Tokyo-based bosses have managed to antagonize the U.S. secretary of transportation, confuse millions of Toyota owners, force some drivers to tears on local news programs and become the predictable brunt of late night comedians. The North American operation of Toyota is clearly a branch plant of Japan, which is where key decisions are made and western style corporate governance is uncommon. The fellow the company trotted out in Japan who was wearing a surgical mask as he apologized for the mess was a fitting symbol for just how inept the company has been in handling this crisis.

It took dozens of years and millions of customer transactions to place Toyota in what has been a preeminent position in the global car industry.  But it takes a special kind of genius to allow all that to unravel and have the wheels fall off customer confidence in a matter of a few weeks.

Take a bow, Mr. Toyoda, your company has let millions of loyal customers down and in so doing has become our choice for the Outrage of the Week.

The Frayed Plumage of the Davos Mentality

The czars and kings of Europe could not grasp why the people revolted against the high taxes, low wages, and hunger inflicted upon them by those who knew only opulence and self-aggrandizement.  The Davos mentality still cannot fully understand the resentment of a public saddled with massive unemployment and a bill for bailouts and social costs that soars into the trillions.

The annual winter parade of the puffed-up peacocks of privilege has come and gone at Davos.  The dire state of the world once again showed the courtesy not to intrude upon the gathering of major élites from business and government, permitting them to descend in their private jets and frolic at the best-catered parties in Europe.  Reality, as it generally does at the World Economic Forum each January, seemed to pass by, as well.

Last year, they missed the extent of the global financial meltdown – a big miss given that it is widely seen as the worst crisis in 70 years.  This year, they had trouble seeing what reforms are necessary to prevent such calamities in the future – or even that any are necessary.  In 2000, Enron CEO Ken Lay declared to his fellow Davos participants that his company was the “21st century corporation.”  In 2003, the gathering was abuzz over U.S. Secretary of State Colin Powell’s rock solid assertions that Saddam Hussein controlled “hidden weapons of mass destruction meant to intimidate Iraq’s neighbors.”   In 2008, former Treasury Secretary John Snow announced at Davos that any U.S. recession would be ”short and shallow.”

Reality, to those inclined to view it from the cloud-fringed temples of great heights or beyond the attended gates of deference and privilege, often appears fuzzy and ill-defined.

As it was with the monarchs of early 20th century Europe who presided over one calamity after another, those responsible for the failures and excesses that led up to the great financial crisis of the 21st century lack the vision to figure out the solution.  The czars and kings of that earlier era could not grasp why the people revolted against the high taxes, low wages, and hunger inflicted upon them by those who knew only opulence and self-aggrandizement.  The Davos mentality cannot fully understand the resentment of a public saddled with massive unemployment and a bill for bailouts and social costs that soars into the trillions that stems directly from the abuses, failures and negligence of those in charge of the world’s financial ship.  Like myopic despots who seldom bothered to read history, and inevitably stumbled into catastrophe over its unheeded lessons, these modern misguided princes of finance have already forgotten the events of the past year and seem headed for further anticipated collisions with the future.

Instead of striking an uplifting tone that shows the titans of Wall Street and its counterparts (or, perhaps, counterparties) actually “get it,” the spirit of Davos produced the grating sound of ingratitude and obliviousness.  Josef Ackermann, CEO of Deutsche Bank AG, talked about the “noble role” of banks and announced that the world should “stop the bank bashing, the blame game.”  Mr. Ackermann was chairman of this year’s forum at Davos.  Billionaire Stephen Schwarzman, a regular attendee at Davos, warned there could be costs to the public’s jaundiced attitude toward the banking system.  “My biggest concern is that, as a result of either proposals or tone, that financial institutions are going to feel under siege and their [sic] going to retreat with their extension of credit,” he told CNBC.  Lord Peter Levene, chairman of Lloyd’s of London, mocked government’s role in bailing out the financial system: “I’m from the government — I’m here to help. You guys in the industry don’t know what to do, so we’re going to fix it for you.”

How quickly they forget.  Citigroup, Bank of America, Wells Fargo, Bear Stearns, Lehman Brothers, Merrill Lynch, UBS, RBS, Lloyds, Fannie Mae, Freddy Mac, AIG and so many more, were all crumbling under the massive weight of writedowns and losses and a withering credit market that only government was able to repair.

Change, especially for those in the Davos world, often comes not in the reform that reality demands, but in the fantasy that overly indulged egos command.  Not surprisingly, there is a resistance in the world of high finance to adopting or supporting widespread financial reforms.  A reliance upon extended methods of liquidity and a zero Fed funds rate seems ingrained in business plans.  And in a culture where obsession with bulging bonuses still prevails, you have to wonder what kind of screwy financial Frankensteins are being assembled that may once again place institutions, and the public, at risk.  Paul Volcker, please take center stage.

Perhaps the irony is not entirely lost on the world that while many of its citizens shell out for the misjudgments of these Alpine participants, they also pay, as taxpayers, shareholders and customers, for this annual march into the snow drifts of élite folly.

When it comes right down to it, there are few thoughts the big players mount at Davos that could not be distilled into a simple Tweet.  Their use of technology and methods of transportation have changed, but in most other ways they are little different than the princes and grand dukes who trotted themselves out every so often to remind the people that they still existed, confusing – as receding fragments of supremacy so often do – vanity with relevance.

The World Economic Forum may have found its way onto YouTube.  But in most respects it is still a silent movie involving people whose attire might seem modern but whose sense of originality and connection with much of the world is as unfashionable and out of date as the Hapsburg dynasty.  One might have thought that the most costly financial crisis since the 1930s and the highest unemployment rates in decades would have produced a paradigm shift at Davos, too.  Instead, the world was treated to an encore performance of over-hyped élites desperately struggling to cling to any vestige of credibility and respect.  They have forgotten even the most recent past.  They have shown little vision for of the future.  This is not leadership.  It is an outrage.

As in previous years, we have included a YouTube film that gives an uncanny portrayal of the Davos mindset of another era.


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.