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.
We’re batting 1000 so far in the prediction department regarding recent developments at Merrill Lynch. Now that the board has shown former CEO E. Stanley O’Neal the door, it needs to do some retooling itself, especially when it comes to its oversight culture, which was pretty limp in supervising Mr. O’Neal. (more…)
After raising the alarm some months ago over what he termed a crisis of competitiveness facing Wall Street, and endorsing the recommendations of a blue ribbon committee on capital market reform, U.S. Treasury Secretary Henry Paulson recently formed —you guessed it— yet another committee to look into the problem. Crisis? The only crisis is the chronic inability of Bush administration policy makers, eager to do Wall Street’s bidding, to acknowledge that higher standards of ethics, transparency and accountability serve the interests of North American investors and long-term confidence in capitalism. Wall Street has never liked reforms, whether they arrived in the form of the Pujo committee of the early 1900s, the Pecora commission of the 1930s or Sarbanes- Oxley in the 21st century. As Ferdinand Pecora wrote nearly 70 years ago, “Bitterly hostile was Wall Street to the enactment of the regulatory legislation.” It has not changed — thus the efforts to roll back and ease recent reforms in the guise of answering a competitive crisis. Secretary Paulson, it will be recalled, came to office last June fresh from his post as CEO of Goldman Sachs.
The problem is that even Wall Street and its high-placed friends realize it is difficult, during a period of unprecedented earnings and bonuses, as well as record Dow Jones levels, to make such a case. Rather than just admitting their folly, another committee seems the best way for them to beat a fast retreat.
Kickbacks, slush funds, sex scandals. No, it’s not business as usual in Washington D.C.; it’s business in top European companies. Siemens, Volkswagen and now BP have all been implicated in conduct at the top that has brought shame to those companies and disgrace to senior managers. The latest is the abrupt “resignation” of BP chairman Lord Browne, who acknowledged lying to the court about his involvement with a male companion. This is a man who had every honor showered upon him. Created a knight in 1998 and a peer (member of the House of Lords) in 2001, he was a trusted advisor to British Prime Minister Tony Blair. He was not even 60. Yet with all his wealth, power and privilege, he was still challenged in that one all-important but often undervalued department —ethics. And for his failure there, all his other gains and accomplishments will be seen in a less impressive light.
One is tempted to draw a comparison with Conrad Black who, as a Canadian, was granted the highest honors that country has to give, including membership in the Privy Council, which is a position normally reserved for members of the Canadian cabinet and certain high-level government officials. It allowed him, among other things, to travel with a special status green-covered passport, which I do not believe was recalled or surrendered when he renounced his Canadian citizenship. He was a trusted advisor to Prime Minister Mulroney at the time of his award. Shortly after giving up his Canadian citizenship, he was made a member of the lords and for many years before that was a close advisor to then Prime Minister Thatcher. He now stands trial in Chicago on a long list of criminal charges. Whatever the outcome of the criminal case against him —and the evidence of Hollinger International’s audit committee members may well be regarded by the jury as testimony to the directors’ own incompetency on such a grand scale it could form the basis of a reasonable doubt about some of the charges— Conrad Black is unlikely ever to be seen as the poster boy for ethics in business.
Ethical problems continue to plague Siemens, too, where it was announced last month that CEO Klaus Kleinfeld Heinrich is stepping down. That company is caught up in a huge scandal involving bribery of union officials and a sordid tale of corporate misdeeds. The SEC has commenced a formal investigation. The scandal took another top official earlier in April when the head of Siemens’s supervisory board, Heinrich von Pierer, resigned.
Volkswagen had a bribery and corruption scandal as well. In January, Peter Hartz, pleaded guilty in German court to operating a slush fund that permitted union friends, fellow executives and politicians to spend lavish amounts on luxury trips, gifts for “girlfriends” and visits to brothels in Germany, Spain and South Africa.
During the U. S. business scandals of the early 21st century, there was considerable tut- tutting about American boardroom ethics. It appears that any European sense of moral superiority is unwarranted. Boards there have proven that they can be just as lax about instilling —and enforcing— a culture of ethics in the conduct of business as any American or Canadian company. In the category of unbelievable but true, bribery of foreign officials was actually a deductible expense for German companies until 1999.
These scandals might also make investors think twice about the much touted benefits of investing abroad because of so-called Sarbanes-Oxley restrictions. High standards of ethics, accountability and transparency may well make the U.S. system of corporate governance and securities regulation the most costly of any —except for all the others when those standards are absent.
He’s back at it again. After calling corporate governance advocates “birdbrains” a few months ago, as we noted at the time here, billionaire television and internet mogul Barry Diller is accusing the press of conduct that is almost illicit in its reporting on CEO pay. “I think it’s close to criminal,” he said of recent media coverage regarding executive compensation. Mr. Diller, one of the highest paid executives in the United States, also fears for the health of directors, whom he portrays as being nervous old aunts in light of the push to make companies more transparent and accountable. “You have boards now that are skittish in every area. They’ve made chief executives very skittish,” he is reported as saying to the Financial Times.
Apparently, it’s just not as easy as it used to be for a CEO to roll over boards and shareholders and grab as much as he can. (more…)
Nice to see The New York Times come on board with editorial concerns today similar to those stated in our Outrage of the Week posting last Friday. You don’t often see an editorial dealing with technical business laws, like Section 404 of the Sarbanes-Oxley Act, but as the Times points out, and as we argued on Friday, (more…)
They’re at it again. They have opposed every progressive move society has widely demanded, from the minimum wage to the first environmental regulations. They lobbied against car safety laws in the 60s and consumer protection legislation in the 70s. They had nothing at all to say as corporate greed and boardroom crime were claiming company after company beginning with Enron (and continuing today with Hollinger) and then dismissed it all as being nothing more than a few rotten apples in the barrel. Some apples; some barrel, as Sir Winston might have said. (more…)