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.

Is the Senate Buying Another TARP in Ben Bernanke?

The Senate’s vote for the Fed’s Chairman will be viewed as a crucial test for who stands with Wall Street and who stands with Main Street.

After some slightly encouraging rumblings in the contrary direction, it appears that the Senate is poised to confirm Ben Bernanke to a second term as Chairman of the Federal Reserve.  Certain senators may be putting their jobs on the line when they do, however.

More and more, Main Street wants to know who stands with it.  Mr. Bernanke is not seen as one of those figures.  Having been part of the Greenspan-era bubble and then, even as Fed chairman himself, still blind to the dark clouds of financial crisis that were forming, his response was to shove an incomprehensible amount of money and support at Wall Street and the major banks.  But he failed to come clean on the Fed’s dealings with the financial institutions that have been taking advantage of these generous programs and, in fact, has aggressively moved to prevent transparency and public scrutiny of them in a landmark case involving Bloomberg News.

Mr. Bernanke’s role in the AIG bailout, and in permitting the secret (at the time) payment of billions to other banks, including Goldman Sachs, is still not fully explained. In the nearly two years since this crisis was apparent and more than 12 months since Lehman Brothers was allowed to collapse, the Fed under Mr. Bernanke has failed to conduct any meaningful internal review as to what went wrong, what signals were missed and what steps the Fed needs to take to address them.  At the very least, a vote on confirmation would seem premature until all the work by TARP’s inspector general, Neil Barofsky, is completed, including questions about AIG’s Fed-approved counterparty payments.

But Mr. Bernanke’s statement to legislators that he did as much as possible to prevent paying 100 cents on the dollar to Goldman is revealing on its face.  Can you imagine the legendary Arthur F. Burns, who ran the Fed under President John F. Kennedy, or William McChesney Martin Jr., who served under a record five presidents, ever being blown off by some bankers who did not want to cooperate at a time of national crisis?  Or is it a matter that Mr. Bernanke has grown so close to the big banks and their Wall Street cousins over the seven years he has been at the Fed that he just can’t say no to them?  There is a reason why Wall Street itself is voting overwhelmingly in support of Mr. Bernanke’s second term, and it’s not because it thinks he’ll be great for Main Street.

Mr. Bernanke is a little like the $700 billion TARP legislation which he co-authored (with then Treasury Secretary Henry Paulson) in the fall of 2008.  In a voice trembling with urgency, he told Congress that if it were not passed and implemented immediately, the entire economy would likely collapse.  But the TARP was never used for its intended purpose.  It did not address the main problems, as we predicted at the time.  No toxic assets were ever bought up with it.  It rattled many in Congress who thought they had been sold a bill of goods.  And more than a year later, a couple of hundred billion of it has not been spent and still many additional costly initiatives were required to get the economy moving.

Has the reconfirmation of Ben Bernanke itself become something of a TARP, where what is being sold is not quite what is needed and will not be used for the intended purpose?  Will the world really end if Mr. Bernanke is not reappointed?   Or is there more risk of the opposite happening because he will miss other disasters that are brewing, just as he missed the early signs of the current one.  Worse, will his cozy relationship with Wall Street end with a hideous price tag that drops like a rock at the doors of Main Street?  Already, trillions in liquidity have been unleashed and the Fed’s balance sheet – a key measure of its lending to the financial system – has ballooned into the record trillions.

A clean break from the past of tolerated bubbles, missed signals and overly generous policies directed at the players who caused the problems in the first place is what is needed.  Mr. Bernanke’s priorities, loyalties and convenient evasions have made him a poster boy for the discontent of Main Street and a part of what drives the forces of turbo populism.

Four years from now, Mr. Bernanke may very well be in office.  But will President Obama and the senators who vote for confirmation and against the perceived interests of Main Street?  It’s a role of the dice that should cause wise lawmakers to think twice.

It’s encouraging to hear that our earlier comparison between Fed Chairman Bernanke and Titanic Captain Smith was not lost on some senators.

Titanic Fed

Captain Bernanke and the Titanic Fed

Ben BernankeCaptain E. J. Smith

Catastrophe seems to have a more forgiving master in the Senate banking committee than in the pages of history. The captain of the Titanic was not given another chance at the wheel.  And unlike Mr. Bernanke, he had the decency to hit an iceberg only once.

The Senate banking committee voted 16 to 7 today to confirm Ben S. Bernanke for a second term as chairman of the U.S. Federal Reserve System.  It is unfortunate for E.J. Smith that he went down with the Titanic in 1912, because, if you follow the committee’s logic, it would have reappointed him to captain another ship if it had had the opportunity.

Mr. Bernanke was part of the crew who allowed the housing and liquidity bubbles to build in the first part of the 21st century.  As Fed chief, he missed the early warning signs of the impending financial collision completely, predicting that any problems would be contained and not spill over to the real economy.  Watertight compartments did not work for Captain Smith, either.  Only a few months ago, Mr. Bernanke told Congress that unemployment would not reach 10 percent in the U.S.  He was an early supporter of the TARP, the nearly trillion-dollar fund which he and others sold to Congress on the basis that its quick  passage was vital  to the survival of the economy.  Turns out it was not really about toxic assets, which the Fed never bought, but about propping up the capital of major Wall Street players -an idea that already skeptical lawmakers likely never would have bought.  Captain Smith was known to be of the view that his ship was too big to sink.  His modern financial counterpart has given new meaning to the concept that certain institutions are too big to fail.  It is worth pondering whether the philosophy, practices and vision demonstrated by Mr. Bernanke will end in a similar calamitous outcome.

At a time when opaqueness and lack of openness are widely regarded as being forceful contributors to the near economic collapse of Wall Street, Mr. Bernanke has adopted that model himself in the Fed’s anonymous transactions at the discount window and its handling of bank collateral, which is the original cash-for-clunkers program.  He was quite happy to have taxpayers kept in the dark about the AIG bailout, which fast-tracked added billions into the coffers of Goldman Sachs and other banks.  After the details became public, he offered the implausible excuse that it was not possible to negotiate a better deal and make Goldman take a “haircut.”  The world’s most powerful central banker can’t take on Goldman, but Mr. Bernanke tells the banking committee he is up to taking on a bigger role as the nation’s financial super regulator.

There is a widely held view in some circles, especially in those given to the folly of excessive public spending (which view is oddly shared by those on Wall Street and in corporate America who are driven by the vice of excessive compensation) that the Fed under its current chairman has navigated recent choppy financial waters with skill and courage.  In their view, Mr. Bernanke saved the banks, brought the economy back from the brink of a depression and performed a number of other miracles that place him somewhere between Albert Einstein and Mother Teresa–Wall Street version.  Perhaps these are less the outcome of brilliance and wonder than they are of a Fed printing press capable of producing unlimited dollars and support for a spending and debt binge that soars into cosmic frontiers where no Fed has dared to go before.  In that imaginary world, anything is possible–for a while.

Wall Street demanded, and Mr. Bernanke dutifully provided, a zero Fed rate that is the banking community’s equivalent of billion dollar bills pouring out of helicopters.  And they are making billions more from it.  New York State officials announced today that Wall Street is poised to report record profits for the first three quarters of 2009.  The $50 billion in profits is almost two-and-a-half times the previous 2000 record (another year associated with a bubble).  Bonuses will be 40 percent higher than last year.  Such numbers are a direct result of the Fed’s easy money policy.  It is not surprising that it can also buy untold support for the chairman who made it possible.

Question for the Senate:  How exactly do you go from being on the edge of the worst Wall Street crisis since the Great Depression to record bank profits in little more than a year?  Could it have happened if Mr. Bernanke had not supplied a very expensive taxpayer-bought getaway car?

The Fed and Wall Street have become an endlessly accommodating club of insiders that Mr. Bernanke has shown he is ill-disposed to disturb, especially after his collision of miscalculation last year with that other iceberg known as Lehman Brothers.  He has been willing to enter into the policy arena and indicate to Congress his disapproval of the House provision authored by Congressman Ron Paul for regular, though delayed, audits of the Fed’s monetary policy, but he has offered not a word of criticism over the New York’s Fed’s governance, for instance, which functions as a self-perpetuating clique of Wall Street bankers electing their own in furtherance of their own interests.  Another well-regarded champion of current financial reform in the Obama administration, under a President whom we admired and supported even before his nomination, seems to share the same view.  Treasury Secretary Timothy F. Geithner was president of the New York Federal Reserve Bank for several years prior to assuming his current duties.  There is no indication that he was ever troubled by the singular Wall Street view that the New York Fed personified, which accounts at least in part for the economic devastation that has ensued under its supervision over the past few years.

It is likely that the full Senate, except for a handful of members on both sides of the political spectrum, will also vote to confirm Mr. Bernanke.  Whether members of the Senate will be around when the U.S. economy collides with the mountain of inflation and another Fed-induced debt bubble that are advancing toward them, and whether the Fed under Mr. Bernanke will even see the products of its myopic policies as they approach, is uncertain.

What is clear is that catastrophe seems to have a more forgiving master in the U.S. Senate than in the pages of history.  The captain of the Titanic was not given another chance at the wheel.  And unlike Mr. Bernanke, he had the decency to hit an iceberg only once.

On Telecoms, Privacy and Tyranny

It is a perilous path when companies and governments decide that the law does not matter and the corporation is merely an agent of the state for however it may wish to monitor customers.

Yesterday, it was reported that the customer records of more than 3.4 million Canadians were stolen in mid-January. It took four weeks before the theft was revealed to Bell Canada’s customers. And while the information was eventually recovered, no explanation has been provided as to what shortcomings existed in its system that would have permitted such a huge breach of privacy. It is hard to imagine that these records were adequately protected if they could be stolen on such a scale. And their theft raises serious questions about how well more sensitive data, including the banking records of customers, is protected. The delay in bringing the breach to the public’s attention shows again that there is need for legislation that would force companies to advise customers immediately when a theft of their information occurs –not weeks after the fact.

Once again, we note that Canada’s Privacy Commissioner is noticeably absent from this file. Twenty-four hours after the theft was made public, the Commissioner’s website hasn’t even acknowledged the incident, much less indicated that it has commenced an investigation. Speed is not a function typically associated with this office. There still has been no explanation of the result of any investigation in connection with the disappearance in 2006 of the personal financial information of 470,000 CIBC customers, which we wrote about here.

In the United States, a breach of a different kind occurred yesterday, when the Senate voted to give giant telecoms immunity from lawsuits as a result of their assisting authorities in the warrantless wiretapping of calls made by their customers to overseas destinations. The telecoms, including giant AT&T, lobbied the Bush Administration and Congress for the bill, and they were more than happy to oblige. For its part, business expects that customers will play by the rules. Legions of lawyers are employed to ensure that they do. It is not unreasonable, it seems to us, that customers are entitled to expect that business will also play by the rules as they exist at the time, and when its does not, whether in privacy matters or wiretapping, consequences should follow.

Retroactive legislation seldom makes for good law or sound public policy. It is a perilous path when companies and governments decide that the law does not matter and that the corporation is merely an agent of the state for however it may wish to monitor customers. Yahoo’s CEO was recently castigated by the House Foreign Affairs Committee for that company’s role in turning over customer emails to security officials of the government of China. In the 1930s, major players in the German business sector eager to be seen as cooperating with the new Hitler Reich during its infamous Gleichschaltung period, volunteered to turn over personal information about their Jewish customers and employees. They argued it was in the national interest to do so.

Fighting terror is a necessary cause in the preservation of liberty and civilization. But in that fight, the distinction between the values of the terrorists and the values of their democratic targets must never be lost. Islamic extremists do not value individual rights, personal freedom or privacy. These are the hallmarks of western democracies. And when elected governments begin to erode these rights in the so-called defence of democracy, they place both in jeopardy.

Telecoms routinely boast about their commitments to protecting customer privacy. But these events show that individuals can depend little on such claims and even less upon the public officials and policy makers who are supposed to be on the frontline of ensuring that protection.