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.

October of the Fleeting Trillions

The magnitude of the financial injury worldwide and the costs to repair it are breathtaking.  But the loss of faith occasioned by what so many see as a colossal betrayal on the part of leaders and institutions may prove the most damaging of all.

The tenth month in the Gregorian calendar will go into history (please!) as the time when more money was lost by shareholders around the world and then found by governments to prop up the global financial system than any four-week period since civilization began.   The amounts may well exceed ten thousand billion dollars when you consider the plunge in stock markets worldwide and the sums public treasuries are coming up with to bailout the banks and just about anything else that has a profit and loss statement.

The ultimate costs both human and financial of this economic carnage and unprecedented public monetary infusion will not be known for many years.  The impact on the economy and monetary stability from the “solution” may carry unforeseen repercussions, just as the problem it is designed to solve went under the radar for too long.  Without doubt, the interaction between capitalism and government has fundamentally shifted, as has confidence on the part of millions of citizens in the institutions they once admired but, alas, no longer even wish to be seen associating with.  It may well be that a generation of investors which has lost so much will choose to forsake the stock market for the rest of their lives.  Many young people could be left with an indelible impression of a system that can never be trusted, except that is to work profitably for a handful at the top until their folly and greed reaches the point where even they become its victims, too.  The seeds of individual bitterness and social unrest have often been sown when the whirlwind of momentous events unearths the land.

Here’s a question –call it the ten trillion-dollar question:  If bankers had done the jobs expected of them in a diligent fashion; if boards of directors had taken an interest in debt and leverage ¾two subjects that didn’t seem to be part of their vocabularies, much less on their agendas; if regulators had been breathing and perhaps even conscious; if policy makers had had the vision to see the possibility of failure and not just the mirage of endless prosperity, do you think all this would have happened?   And what does it say about institutions and leaders in the 21st century that so many seemed incapable of exercising sound judgment and common sense, even when some were receiving compensation on a scale never seen in the history of professional managers?  

The magnitude of the financial injury worldwide and the costs to repair it are, indeed, breathtaking.  But the loss of faith occasioned by what so many see as a colossal betrayal on the part of leaders and institutions who acted as though they had the wisdom of prophets, but in truth had not even the foresight of blind men, may prove the most damaging of all.  It is a lesson that will be remembered long after this October of the fleeting trillions has faded.




Would a Sensible Investor Buy into the Bush Bailout Plan?

Making bad investment decisions over risky products that people did not fully understand is what brought the United States and Wall Street to the brink. Is another terrible folly about to be repeated, even with echoes of the costs and misadventures of the Iraq war booming loudly across the land?

Investors generally like a few details before laying out their money. A knowledge of the investment’s business plan, its costs, its expected return and its risk –above all, its risk– are key to the decisions investors make. It should be no different for citizens when they are asked to put $700 billion on the line for the private sector.

In this case, however, basic rules for the informed citizen/stakeholder are being thrown out the window. How the Bush bailout plan will be managed, what assets it will buy, how it will value and how long it will hold them are all undisclosed. It is hard not to be doubtful that the compromise proposal now being discussed will offer much more information. There is considerable dispute that the plan even addresses the fundamental problems in the banking sector. A rare and impressive collection of more than 200 economists, including Nobel laureates from both the left and the right, have raised serious questions about the plan and have urged Congress to reject it and to hold hearings into alternatives.

Making bad investment decisions over risky products that people did not fully understand is what brought the United States and Wall Street to the brink. And the sums stagger the mind. When you make a decision involving this amount of money, every detail matters. Probably even the spin of the earth should be calculated in the analysis for good measure. But what utterly takes the breath away is the lack of transparency and specifics offered as they relate to the single largest expenditure by any government in the history of the world. There is no clear statement even as to the kind of weak assets the government proposes to buy, much less how they would be valued. I suspect it will soon work its way down to student loans, car loans and credit card debt. Given the desperate picture portrayed by Fed chairman Ben S. Bernanke –who claimed in testimony before Congress on Tuesday, “I believe if the credit markets are not functioning that jobs will be lost, that our credit rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal, healthy way…”– and Treasury Secretary Henry M. Paulson Jr. –who resorted to begging House Speaker Nancy Pelosi, on a bended knee, for her support– don’t be surprised to see some banks even scurrying to trade in the trashy boardroom artwork selected by the chairman’s wife for some quick government cash.

Then there is that convenient cash and carry discount window the Fed is providing on a 24/7 basis. In the course of less than a year, deposit taking and investment banking institutions have so far borrowed a record $262.34 billion. The amount doubled in just the course of one week, the Fed said in its September 25th report. Total average daily borrowing also jumped to $187 billion from $50 billion in the previous week.

This unheard of level of borrowing from the Fed has received nothing near the reporting it deserves. To some observers it suggests that bank liquidity problems may be even more serious than are being disclosed. How much more will the taxpayer be on the hook for in addition to the $700 billion now being sought by the administration, which in turn is on top of the hundreds of billions that are on the line for all the other bailouts to date? If ever there was a time when the voices of the best economic minds in the world needed to be heard by lawmakers and citizens alike, it is now. Yet there has been no organized forum for either informed debate or Congressional testimony. Not only is $700 billion at stake, but much more will be at risk if the wrong decisions are made or the wrong problem is attacked. And what does the government do if it gets it wrong? Will the administration’s massive proposal stabilize a weakening housing market, which is the driving force in the erosion of corporate balance sheets and the unraveling of debt obligations, or will it merely be a prisoner in an even faster moving express ride downwards?

Institutions are failing, to be sure. Just this week Washington Mutual became the largest failure of its kind in history. But if the $700 billion dollar fund had been up and running, it is unclear whether it would have made any difference. And no one from the administration or Congress has weighed in on that issue. Even before this deal was proposed,  Fed and U.S. government commitments and costs related to this crisis totaled more than a trillion dollars. Still, we are told a credit market calamity unlike anything since the Great Depression is possibly hours away unless taxpayers pony up hundreds of billions more.

So what exactly is the problem this bailout is supposed to be addressing and is it the right one? What if banks, having sold off their bad loans to the government, decide not to lend any money, except to other banks and their wealthiest clients? What will be the costs to the economy and to small business owners as well as ordinary Americans? Taxpayers should not be left scratching their heads for the answers. Some may recall that, as noted on these pages, just after the $21 billion takeover of AIG, the White House admitted that taxpayers may not see their money returned.

Here’s an idea: Why don’t Wall Street and the private sector take a more prominent role in cleaning up the problem that was of their creation? We are told that trillions of dollars is sitting on the sidelines and is ready for the right opportunity. But little effort is being made to corral these resources into an overall plan. It is just another inexplicable piece of a puzzle that has been turned into a masterpiece of confusion and uncertainty. Another nagging item: If the world is hanging on by the finger nails over the abyss of financial collapse which can only be averted by the steps the Congress is being asked to take, and so much anxiety centers on how the Asian markets will react on Sunday night (EDT) if the deal is not approved, why have governments around the world not proposed their own contributions to global economic salvation? Why do we not see their lawmakers meeting around the clock and over the weekend to do something to appease the markets?

Is America stumbling into a financial Iraq? The rush to attack a problem that did not exist on the basis of costs and consequences that were not anticipated have already taken their toll on America, its brave young troops, their families and the reputation of the country. The financial price tag for the Iraq misadventure is also counted in the hundreds of billions. Some estimate that it will soar into the trillions. Are we dealing here with the financial equivalent of threatened mushroom clouds and weapons of mass destruction? Another echo from that lamentable miscalculation is the idea that government cash may wind up making money for taxpayers. And the Iraq war was supposed to be self-funding from that country’s extensive oil reserves. Americans are still waiting for that windfall.

This much is clear from that costly experience: When principles that affect public confidence are sacrificed for the expectation of immediate gain, both stand at risk of being lost.

What is worrisome is that few leaders in business and government have demonstrated any grasp of the larger picture. Not only is there an apparent inability on the part of both Democrat and Republican legislators to connect the dots between the Fed’s record loans, the costs of the recent torrent of bailouts, the extent of the subprime mortgage mess, the swelling deficit and shrinking U.S. dollar and this latest government proposal, it is unclear that they even see the dots at all. The lack of leadership in providing the public with clear answers was especially apparent in Friday’s first debate among presidential hopefuls John McCain and Barack Obama.

The way Wall Street has been working is no way to run a business. The way the Bush bailout plan is being decided is no way to run a government. We are already seeing the consequences of the first fiasco. One shudders to think of what might await in the mismanagement of the second.

How Would You Like to be Remembered, Mr. Prime Minister?

Rt. Hon. Lester B. PearsonIn December 1957, a future prime minister of Canada received the Nobel prize for peace. In December 2007, a former prime minister is forced to explain to a skeptical country why he received envelopes stuffed with cash.

It is hard to imagine a more striking contrast in political character. Yesterday, Brian Mulroney, Canada’s 18th prime minister, appeared before a committee of parliament to explain why he took hundreds of thousands of dollars in cash from a businessman who wanted him to help sell armored vehicles when he left office. Rt. Hon. Brian Mulroney

Fifty years ago, almost to the day, the man who would become Canada’s 14th prime minister received the Nobel peace prize and the adulation of the world for his efforts to bring peace to the Middle East. (more…)

Outrage of the Week: Subprime Hypocrites in Retreat

outrage 12.jpg

The real purpose behind the Bush Administration’s plan is not to help the victims of the subprime turmoil, but rather the perpetrators of the economic crime who unleashed it in the first place.

To justify their out-of-this-world bonuses, the titans of Wall Street and the kings of the home lending business, like Countrywide Financial’s Angelo Mozilo, claimed they were merely being compensated according to the dictates of the market. No mere mortal dare challenge or question the end result where many received $40- or $50- or $100-million paydays. It was the invisible hand that decided. And it was sacred.

But now the results of that invisible hand look more like a rubble of confusion and ruin, at least as they related to the subprime mortgage industry and the unsettling economic blunders created by Wall Street on a global scale. So it is government that is expected to intervene to bring stability to the market’s jittery hand. An ever-receding Fed interest rate has been one response, along with world central bankers flooding the market with cash. One wonders how the same low interest rates, which saw the concept of risk take a very long vacation, will improve over the long run a situation that was created substantially by low interest rates.

Yesterday, President George W. Bush and Secretary of the Treasury Henry M. Paulson Jr., who are generally advocates of the free market when it is more convenient than present circumstances permit, announced a plan that purports to help distressed home owners by bringing lenders and borrowers together to solve problems. Only a fraction of those expected to need help will benefit. A more realistic interpretation of what is at work here is an effort to bring stability to Wall Street’s largest institutions, which are facing giant losses, slumping share value and increasingly nervous clients.

As much as we admire the discipline and innovations a well (and we hope fair) functioning market can produce, the case for the constructive use of government policy and influence in that market is well established. Some argue that FDR did more to save capitalism than all the J.P. Morgans combined. What is galling is that Wall Street and American business are eager to accept the idea when it is in their own narrow interests, such as now, while at other times –and especially at bonus time– government is exhorted to stay out of the market. And don’t think for one moment that the big players do not see a considerable direct benefit in government efforts, supported by Fed accommodations, that help to stabilize the effects of the housing meltdown.

The plan announced yesterday is something in the nature of saving the financial community that created the ticking time bomb of subprime loans and syndications from itself. Offensive as that may be to some, the indignation pales in comparison to the fact that those who created this mess are the ones that have benefited most handsomely from it. The sting of that image is not reduced as some, like Merrill Lynch’s Stanley O’Neal, are seen making a fast exit with piles of money to ease their pain. We set out some of our views on the public stake in CEO compensation as it relates to the subprime meltdown in a recent guest column on the corporate governance blog of Harvard Law School.

What might have restored confidence in the moral underpinnings of this system–without which it cannot continue to function– would have been a statement from President Bush or Secretary Paulson that they have also worked out a plan whereby a substantial part of the compensation and bonuses that were derived from these toxic loan concoctions would be given back and placed into a fund to assist distressed homeowners. The symbolism would have been significant and a major boost to the idea that fairness, too, is a commodity that the marketplace values.

That did not happen because the real purpose behind the Administration’s plan is not to help the victims of the subprime turmoil, but rather the perpetrators of the economic crime who unleashed it in the first place.

The Malleable Dr. Greenspan

Alan Greenspan, whose selective vision we have written about before, appears to have been “shocked, shocked” that tax cuts were contributing to the mounting deficit in the Bush administration. That is, if you believe his just released autobiography The Age of Turbulence. This is a man who, as head of the Fed until just 18 months ago, had nothing but praise for these same deep tax cuts when asked about them before Congress on several occasions. He wanted them made permanent, in fact. He also seemed to have lost his tongue when it came to raising red flags about other aspects of deficit spending that took hold of Mr. Bush and his fellow Republicans the likes of which no liberal would have dared attempt. Now both figure prominently as a source of outrage in the mind of the once revered oracle of U.S. monetary policy.

I recall Dr. Greenspan having a similar change of heart when it came to Sarbanes-Oxley legislation, which he initially supported along with the White House and both houses of Congress. More recently, however, private citizen Greenspan, who consults regularly to American business, expressed chagrin at the dampening effects of such legislation.

There is a very old toy, still popular with children, called Silly Putty. It is remarkably malleable and can be molded into just about any shape. It is an amusing property for a toy, but not so much for the character of those who hold high office. The public is entitled to expect that its leaders will be forthright in their views when it comes to the responsibilities they hold —not hold back their real thoughts for the best seller list.

How many other momentous events will later turn out to enjoy less support than met the eye at the time? What faulty decisions are being made today in Washington and around the world by figures who could stop them if only they had the courage to speak out. The lessons of Vietnam, and now Iraq, are painful testimony to the consequences of the voices unraised, the silent doubters and those who just could not bother to ask the tough questions.

The world needs leaders who are on the job today, when it matters and when they can effect change for the better, not in the book store telling us about what they really, really sincerely felt —tomorrow.

Outrage of the Week: James Bartleman’s Two-Decade Silence over Air India Bombings

outrage 12.jpgIt was bizarre almost beyond belief. Though he now admits he had received advance intelligence that an Air India plane would be attacked by Sikh extremists on a weekend in June of 1985, he failed to tell his superiors. Nor did he apparently even do what almost every bureaucrat is programmed to do —write a memo confirming his fears and send it to other concerned officials. But when the RCMP brushed off his warnings, he did nothing more and went home. The plane was blown up off the coast of Ireland a few days after the intelligence warning on June 22, 1985.  It was the largest mass murder of Canadians in peactime, killing 329 souls –82 were children.

If that’s not enough, the actions of this senior intelligence officer for Canada’s department of external affairs get even stranger. He didn’t bother to follow up about the warning after the plane was downed, even though all of official Ottawa was in crisis mode in the days following the bombing. And over the ensuing 22 years, James Bartleman admits that he did not say a word about the warning in all the time he held a variety of increasingly high-level positions. In his four-volume autobiography –that’s right, four volumes (many more historically noteworthy figures have a problem producing just one volume on their lives; Thomas Jefferson didn’t write any), he talks in great detail about his boyhood and professional life —excluding, however, that one all-important fact that he revealed earlier this week.

Mr. Bartleman has enjoyed just about every public honour the country has to offer. He has held postings representing Canada abroad as its ambassador and currently occupies one of the most important ceremonial offices in the country as Lieutenant-Governor of Ontario. Yet, during all this time, he thought it right to remain silent about a key piece of the evidentiary puzzle so long missing until this week when, accompanied by his lawyer, he showed up at a public inquiry into the bombing. His failure to come forward at an earlier time, he explains, resulted from being out of the country for many years. He was not, we presume, in a cave without telephones and faxes. There were many return trips to Canada during this period, as there are for any ambassador. It’s a story that is hard to accept and victims’ families are not buying it. Many understandably regard Mr. Bartleman’s decision to drop the ball and not pick it up again for more than two decades as another in a long list of official betrayals. Many will wonder, as we do here, how such an individual can be permitted to retain his vice-regal post, given the trust and esteem the role enjoys. Some may also ponder what kind of signal this conduct sends to current civil servants who might also be tempted to follow the path of least resistance.

The public rightfully expects that those it entrusts to protect it will always go the extra mile in that task —not just walk away after doing the minimum. The kind of shocking misjudgments reflected in Mr. Bartleman’s behavior —the failure to follow up the initial warning to all centers of government authority that needed the information, the failure to alert superiors to an imminent terrorist act, and the failure to come forward to ensure the warning was on the record after the disaster occurred— would be career-ending moves for any mid-level civil servant and would most decidedly not be the basis for promotion and high honors, which is why James Bartleman’s astonishing and still not credibly explained actions are our choice for the Outrage of the Week.