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.

Conrad Black’s Race to the Bottom

By attacking American presidential leadership under Barack Obama and invoking a racial slur in the process, Mr. Black continues to show who and what he is.

Conrad M. Black, famous for vituperative excess, renouncing his Canadian citizenship to become a British Lord, disdain for shareholders whom he viewed as a cheap source of capital and, more recently, his sojourn as Prisoner Number 18330-424 at the Coleman Correctional Facility in Florida, has made some year-end pronouncements on the future of the Untied States that are sure to gain attention.

In his regular column in Canada’s National Post, Mr. Black writes today:

For the first time in the history of the U.S. Presidency, Mr. Obama had to badger a foreign head of government to meet him (China’s premier Wen). Last year, shoes were thrown at the U.S. president. This year we had self-abasement before the Japanese Emperor and (unsuccessful) supplication to the Chinese. If this trend continues, by the end of this new decade, the U.S. president will be invited to international meetings as a shoe-shine boy.

Mr. Black begins the above paragraph with reference to President Obama and ends it by invoking the image of some future American president as a shoe-shine boy. Let’s brand this for what it is: an utterly disgraceful slur with a racial connotation that is being made in connection with the first African-American president in U.S. history.  It evokes images, long discredited, of an ugly past which have no place in the discourse of civilized people.

It is a stark reminder that Mr. Black is not a civilized man, but rather a crook who fleeced his own shareholders and perverted the course of justice.  In a normal world, we would not be reading what crooks have to say about American foreign policy or its justice system, or Canada’s for that matter.  The headlines of their thoughts would not blare across the top of editorial pages.

What happens at the National Post is anything but normal.  Mr. Black is accorded unique access to a significant, though disintegrating, piece of journalistic real estate in Canada, whose editors and publishers drift untroubled by the criminal proclivities of its op-ed columnist and prefer to portray him still wearing a business suit with not a hint disclosed to readers about his current forced confinement as a convicted felon.  The Post has been flirting with bankruptcy for some time.  It is part of the Asper media empire, which, in Canada, has become synonymous with financial folly on the grandest, indeed, almost Conrad Black-like, scale.  Sound judgment is the most underperforming asset in the company.  The Aspers do not just lose money; they hurl it out of their boardroom windows in bales.  Last month, their company experienced another ignominious fate which also parallels Black’s Hollinger:  Canwest  was delisted from the Toronto Stock Exchange (TSX).

The Post continues to hemorrhage to the point where it is unclear how much further it can go.  But by publishing such repugnant views, it is demonstrating that its ethical standards, like those of the felon whose voice it trumpets, have already passed the point of insolvency.

Why Canada’s Stock Markets Attracted Russian Mobsters Like a Magnet

Even a former Premier of Ontario claimed he was duped as he presided over this fraudster’s scheme.

The odd name YBM Magnex suddenly emerged from its shadowy past last week when the FBI placed Semion Mogilevich, its Russian mobster mastermind, on its “Ten Most Wanted” list. He is accused of swindling Canadian and U.S. investors out of $150 million in a complex international financial scheme.  Authorities say the fraud involved preparing bogus financial books and records, lying to Securities and Exchange Commission officials, offering bribes to accountants and inflating the share values of YBM, which was headquartered in Newtown, Pennsylvania but whose stock was traded on Canada’s top exchange, the TSE (now TSX).  The policing of potential fraud was a low priority for the TSE in those days, and the reputation of Canada’s capital markets suffered significantly during this period.  So did confidence in its corporate governance.

There continues to be an active debate as to whether Canada is  tough enough on white collar crime, and whether, without a single national securities commission, as I and others have long advocated, there can be any hope for a more robust enforcement regime.

To increase its lure to investors, the company attracted some prominent independent directors, including David Peterson, a former premier of Ontario.  In testimony some years later before the Ontario Securities Commission on the matter, Mr. Peterson admitted that he did not make notes at company board meetings and did not retain any records.  He was, for a scheme like YBM and Mogilevich, the ideal slumbering director.

I was one of the first to write about the scam and the failures that led to it, in 1998. Below is one of those articles, published in the Financial Post more than a decade ago.

Wednesday, July 15, 1998

Guest Column

YBM simply the latest example

Top securities regulators asleep at the switch again

The Financial Post

History sometimes repeats itself. In Canada’s premier securities market the failure of regulators to respond to danger signals is becoming an alarming habit: Cartaway, Timbuktu, Bre-X, Delgratia.

The latest case involves YBM Magnex International Inc., whose trading was halted on the Toronto Stock Exchange in May amid questions over the company’s 1997 audit and in the wake of police raids on its corporate headquarters in Pennsylvania. The scandal bears such eerie similarities to the Bre-X Minerals Ltd. scam of just a year earlier one is tempted to conclude it is the fickle hand of fate that is writing this drama. But it is not fate. It is the recurring folly of this country’s top securities regulators.

Both Bre-X and YBM began their journey on the Alberta Stock Exchange. Listings on the TSE and inclusion on its prestigious 300 composite index followed for both companies. In April 1997, the exchange’s president, Rowland Fleming, assured investors the Bre-X debacle had “heightened the state of alert in our market surveillance department.” But, later that same month, YBM was added to the TSE 300 index.

TSE officials have since admitted they knew then of criminal investigations on two continents into an alleged Russian crime figure with a stake in YBM. However, neither the exchange nor the Ontario Securities Commission, which was also aware of the investigations, thought it advisable to disclose these facts to investors at the time of YBM’s listing and later stock offering. It is an omission that makes Canada’s top securities regulators potentially more culpable in the YBM fiasco than they were in Bre-X.

Another Bre-X-type danger signal was the extensive insider trading occurring before the accounting firm of Deloitte & Touche Ltd. announced in May it was unable to certify YBM’s 1997 financial statements. The company’s president, Jacob Bogatin, and several officers sold more than $2 million worth of stock between late February and April.

Troubling too is the trading activity of Kenneth Davies, one of YBM’s independent directors and a member of its audit committee. He reportedly made a profit of nearly $250,000 selling YBM shares after the board learned Deloitte & Touche was suspending its audit of the 1997 figures but before that information was disclosed to the public.

Clearly, regulators need to be more alert to insider trading in companies with questionable track records. In addition to the police investigations they knew about, regulators had forced YBM to have its 1996 books re-audited, resulting in a restatement of material facts.

Directors of Bre-X also engaged in heavy insider trading before negative revelations that saw share values evaporate. For more than a year, the OSC has been investigating the Bre-X trades for possible securities law violations. Yet the regulator still hasn’t released any information, this despite its increased resources thanks to a changed funding formula — including a new chairman with an annual salary of more than $450,000 — and enormous public interest.

Also, the corporate governance practices of these two companies were well known to both the TSE and OSC, and to YBM’s legion of mutual fund and institutional investors. Bre-X had an insider-dominated board that violated exchange guidelines on good governance. YBM’s list of outside directors includes Owen Mitchell, who is also a director of First Marathon Securities Ltd., the company’s lead underwriter. Former Ontario premier David Peterson is also a director, while his law firm acts as Canadian solicitor of record for YBM. Peterson, like other directors, has also participated in the company’s generous stock option plan. TSE guidelines on corporate governance advise directors should keep themselves “free of relationships and other interests which could, or could reasonably be perceived to, materially interfere with the exercise of judgment in the best interests of the corporation.”

The parallels between Bre-X and YBM show how little the TSE and the OSC have learned — and how vulnerable the public is to regulators’ omissions that put their investments at risk. Since these issues involve the integrity of Ontario’s capital markets — a key Canadian asset in the global economy — it is time for Ontario Finance Minister Ernie Eves to order a review of what needs to be done to make the TSE and the OSC more vigilant. Neither Canada nor the investing public can afford to have such regulatory folly repeat itself another time.

J. Richard Finlay heads the Centre for Corporate & Public Governance.

There is Madness in the Madoff Punishment, Too

Are we looking here at a return to the kind of circus-like justice found in the Roman Colosseum two thousand years ago, designed as much to entertain as it was to penalize?

Many things come to mind with the sentencing in Manhattan federal court of Bernard Madoff for the almost incalculable fraud he inflicted upon so many victims. Unfortunately, what stands out most about yesterday’s courtroom drama is that the extravagance of the crime appears to have been surpassed only by the exaggeration of the punishment.

What U.S. District Judge Denny Chin handed down in the biggest Ponzi fraud in American history is neither an effective deterrent nor a measured response to the offense. Here is a case where not only does the punishment overshadow the crime, making Lady Justice seem like something of a carnival figure, but it will also undermine the need to take white collar misconduct and the culture that permits it more seriously.

A century-and-a-half in prison for a man in his seventies will not deter future offenders. What it will do is minimize by comparison the crimes of people like Bernie Ebbers, Dennis Kozlowksi and others who are serving 25-year terms for their frauds. That is a mistake. What has been created is a scenario where every new boardroom villain and Wall Street fraudster, no matter how atrocious their crimes, will be able to claim “at least I wasn’t as bad as Madoff,” and look for understanding from the courts and the public on that basis. And by any comparative conviction, they will be correct.

Few voices have been as demanding of reform or more alarmed about the state of ethics on Wall Street as those raised on these pages. The crimes Madoff committed, and the magnitude of the betrayal he mounted, are undeniably deserving of a sentence that will see him spend much of the rest of his life behind bars. But what does adding at least 125 years of imprisonment to a life that will never see them do for the fact, or appearance, of justice? Will they keep his embalmed body in his prison cell for a century longer? Does it bring more solace to his victims? Are we looking here at a return to the kind of circus-like justice found in the Roman Colosseum two thousand years ago, designed as much to entertain as it was to penalize? Excessive conduct in human behavior, however repulsive, cannot excuse the vice of excess in the administration of justice.

What the sentence does is give the false impression that the criminal justice system and securities regulators, like the SEC, who dropped the ball on the Madoff file and only re-discovered it after he confessed to his fraud, have really done something big about the problems of crime and greeed on Wall Street. They have not.

If Madoff is to be the benchmark by which future white collar crimes are to be judged, we are in serious trouble. We cannot permit other egregious offenders who bring down entire companies, wipe out thousands of jobs and injure millions of investors, to be viewed as petty thieves on the new Madoff scale. It is hard to make the case that Madoff’s misdeeds, monstrous though they may have been, were greater than the combined crimes of Bernie Ebbers (WorldCom), Jeffery Skilling (Enron), Dennis Koslowski (Tyco), Sanjay Kumar (Computer Associates) and Conrad Black (Hollinger). But on a punishment basis, that’s exactly what this sentence says.

The larger risk, too, is that the need to change the culture of Wall Street and those who skate close to the edge, will be obscured by the record-shattering nature of the sentence. Why the SEC did not do more to detect Madoff’s three-decade-long scam, even when presented with numerous clues, has never been adequately explained.  Nor has there been any serous 9/11 type commission to examine the causes and failures leading to the worst collapse of credit and financial confidence since the 1930s. At the rate things are moving, it may take a century-and-a-half before those issues are fully addressed. Mr. Madoff does not have 150 years to be punished, as society has indicated it prefers, but neither has society or its system of capitalism anything approaching that amount of time before they come to grips with how such things can occur and what needs to be done to raise the standards of ethics in the handling of other people’s money.

The court of public opinion needs to speak on that front with a force equal to what emanated from the Pearl Street courtroom yesterday.

Black to be Heard

The American justice system, which Conrad M. Black disparaged before, during and after his conviction on fraud and obstruction of justice charges in 2007, has taken a surprising turn today -surprising to Mr. Black, especially.  The U.S. Supreme Court announced this morning that it will hear his appeal.

A few years ago, there were not many who would have refused to listen to whatever Mr. Black wanted to say.  He was courted, honored, praised and saluted throughout North America and Europe by presidents, prime ministers and princes.  Now, the only people who matter are the nine justices of the top court of the land.   This is not the best time, still, for Mr. Black, who remains in prison, and some of his friends, who have their own travails with various forms of the legal system. 

Garth Drabinsky was found guilty of fraud in a Toronto court earlier this year. Former Canadian prime minister Brian Mulroney is even now at the center of a commission of inquiry looking into the circumstances which saw his receiving envelopes of cash, beginning just after he retired from office, from a shady arms dealer who is wanted by the German government.  Conrad Black served on the board of Livent, the company founded by Mr. Drabinsky, who was a close friend. Brian Mulroney elevated Conrad Black to membership in Canada’s privy council, a rare honor for those who do not hold public office.  Conrad Black was a long-time friend of Mr. Mulroney and a major financial backer of the Conservative party under his leadership.   All of these men are members the Order of Canada and were trained in the law.

Mr. Black has frequently opined on the failings of the U.S. justice system. But as he now begins to set his gaze upon the only remaining nine citizens of planet Earth who hold the key to his future in their hands, one can soon expect to hear that institution trumpeted, in true Blackarian form, as the Founders’ purest and most noble of creations.  It’s not entirely a virtueless view, and it is a marked improvement from his lordship’s previous line about the prosecutors with toilet seats around their necks.


Crackdown in the Boardroom

Even Canada’s corporate crime cops are suddenly busy busting businessmen

It was a day for the record books. Never have so many high profile former insiders in so many companies been charged with fraud on both sides of the border. The RCMP, a frequent object of criticism for its slow pace in bringing white-collar criminals to justice, suddenly broke into a sprint and charged a whole slew of former executives in Nortel and Royal Group Technologies, including past CEOs of both firms. In the United States, justice department officials brought indictments against two former hedge fund managers at defunct Bear Stearns.

As an aside, you may have noticed the former Bear Stearns managers being taken away in handcuffs, escorted by armed federal agents. You will not see that picture in Canada. It’s just not considered the Canadian way -at least not when it comes to dealing with corporate fraud at this level. Some observers believe the contrast says a lot about the differences in how seriously the two jurisdictions treat white-collar crime.

Now that one-time executives at Nortel and Royal Group Technologies have been charged, the question is when will they be tried? Canada has a notoriously slow record in getting high profile white-collar cases into the courtroom. Garth Drabinsky and Myron Gottlieb, founders of the once highflying Livent, where charged with accounting fraud in 2002. Their trial got underway in Toronto just last month. We have been attending some of the proceedings and will be following up with a posting shortly. The charges involving Nortel’s former executives arise from events in 2002 and 2003, nearly six years ago. The fraud at Royal Technologies is alleged to have taken place some 10 years ago. By contrast, the U.S. justice system typically works much faster, as Conrad Black discovered to his dismay. The Bear Stearns fraud is said to have taken place in early 2007. The legal future of the pair charged there will likely long have been decided before even the first word is spoken in the Canadian corporate trials of the former stars of Nortel and Royal Technologies.

One more fact in common among these three companies is worth noting. They were a model of corporate governance failure. We broke news on Bear Stearns’s stunning board shortcomings even before its unceremonious end. Royal Technologies’ governance, and it’s being generous to call it that, was so bad it is hard to imagine that the lights were ever turned on in the boardroom. Did the CEO hide the switch from the directors? We shall see. Nortel, like Enron, was one of the boards that looked good on paper but in reality was giving management a blank check. It’s not surprising that some of the company’s former management may actually have taken that role a bit too seriously. To have had to restate its financial figures as often as Nortel has (four times in all and a record for a publicly traded company in such a period of time), and to admit the extent to which its internal financial controls had failed, are a testimony to how far and how long its big-name board slumbered.

Don’t be surprised if the issue of corporate governance, and what directors did and did not do, features prominently in some of these trials.

Is Elba or St. Helena Next for Conrad Black?

The otherwise avoidable fall of great men from high places always commands public attention and often history’s scorn.

It is difficult to know what the future holds for Conrad Black. We learned yesterday that he has been sentenced to 6 1/2 years in a U.S. federal prison. However much his friends interpret this as yet another form of vindication, as they did with his conviction on just four of the 13 counts on which he was tried, it is an unsettling prospect that looms ahead.

We know something of what became of Lord Kylsant of Carmarthen, however –the only other British peer to be convicted of fraud in connection with a public company. (more…)