This week marks the 100th anniversary of Edward R. Murrow’s birth. For the generation of my grandparents and parents, his voice was synonymous with integrity in reporting the events that shaped their lives. Few could match his gift for words or their authenticity in describing the seminal events of his era -a war-time Europe in flames; the horror of Germany’s concentration camps; and, later, the terror unleashed by a particularly odious junior senator from Wisconsin.
He practiced the craft of speaking truth to power, which, at its best, is what journalism is about. It is such an important calling in a world where the ability to hold the powerful to account is the lifeblood of freedom and democracy. In sentence after sentence and in program after program, from his days in war-torn London to his legendary “See it Now” series, this icon of American broadcast journalism reminded people how imperative it was that they knew what was happening around them in their world. People invariably felt better-informed and reassured after listing to Mr. Murrow. He did not talk down to his audience, nor did he find the need to engage in the kind of babbling banter that passes for insightful commentary in many newsrooms today. It was the respect he showed for the obligations of the journalist and for the power and responsibility of words themselves that allowed him to gain the trust of the public. How rare those qualities seem today.
Had he lived in this time, I suspect Edward R. Murrow would likely have been a rather iconoclastic figure. He would not be among those of his profession today who appear to sleepwalk while power is moved more and more into the hands of governments and special interests. He would not have remained silent as the voice of the ordinary individual is increasingly drowned out by the lobby of the super rich and those seeking their favor, nor would he have been a passive witness to what I have called the era of the vanishing stakeholder.
Surely, he would have been troubled by a society which is rich in news information but rarely in context or balance, where ratings are the ultimate determinants of what the media portray as the truth, and where the world seems inexorably heading to a point where most people will seek to be informed by that most authoritative of all news sources: YouTube.
Would Mr. Murrow have found today’s culture of mainstream journalism inviting? Or would he have turned to the blogosphere as the only place were a truly independent voice can be raised and heeded? And what would he think about the level of journalistic standards that sees major newspapers still offering Conrad M. Black, currently serving a 78-month sentence for fraud and obstruction of justice, a platform for his opinion on American politics and foreign policy direct from that bastion of academic integrity known as the Coleman federal correctional complex in Florida?
I believe we have a sense of where he would have been on the war in Iraq and the climate that preceded it, where it was considered un-American to question the merits and costs of the war, the evidence offered for its prosecution, or the motives of those who so strongly advocated it.
Here is a quote from a 1953 broadcast that seems especially appropriate today. It is vintage Murrow, and we give the last word, as it should be, to the man himself.
“If we confuse dissent with disloyalty – if we deny the right of the individual to be wrong, unpopular, eccentric or unorthodox – if we deny the essence of racial equality, then hundreds of millions in Asia and Africa who are shopping about for a new allegiance will conclude that we are concerned to defend a myth and our present privileged status. Every act that denies or limits the freedom of the individual in this country costs us the. . . confidence of men and women who aspire to that freedom and independence of which we speak and for which our ancestors fought.”
Merck pays out nearly $5 billion to settle Vioxx claims, Yahoo incurs the wrath of legislators, and another poisoned child’s toy made in China is recalled. The growing credit market implosion threatens recession. These are the predictable consequences of the subprime leadership and ethics in our boardrooms and in our institutions of government over the past number of years.
The Outrage generally prefers to focus on a single event. This week, however, there was a common theme among several events. There was the Merck $4.85 billion settlement over its Vioxx debacle. Next, there was the appearance of Yahoo CEO Jerry Yang before the U.S. House Foreign Affairs Committee to answer questions about his company’s turning over information that led to the arrest and imprisonment of Shi Tao, a Chinese journalist and political activist.
The week ended with revelations that yet another toy made in China contained toxic chemicals and with officials ordering that Aqua Dots, distributed in North America by Toronto-based Spin Master, recall more than four million units.
What these incidents share is a betrayal on the part of the companies and leaders who could have done better, but failed miserably in their ethical performance. Merck is one of the world’s leading drug companies, yet it continued to market this highly profitable product even after company officials were warned by their own medical researchers of serious problems.
The company pulled Vioxx off the market in 2004, citing increased cardiac risk. But, as the Wall Street Journal reported at the time, Merck had earlier indications of serious problems. A March 2000 internal email shows company research chief Edward Scolnick warning that cardiovascular events “are clearly there.” Still, Merck continued to deny any link between heart attacks and Vioxx.
Yahoo is a company founded and headed by a brilliant billionaire who one might have thought had enough money and youth to still have a social conscience. But doing business in a multi-billion consumer market headed by a corrupt authoritarian regime was too tempting to resist, it seems. And so it was that Yahoo became an adjunct of the Chinese secret police –spying and snitching on its customers and thereby poisoning a name and a brand that had become known world-wide for its sense of innovation and exploration of the limitless knowledge held in cyberspace.
We don’t know who is really behind this latest toxic threat to our children. And maybe that’s the real problem here. Distant manufacturers operating under opaque regulations and dubious enforcement, vague distributors, off-shore companies and the lure of huge profits all conspire to put health and safety way down the line and out of the mind of any responsible entity. These kinds of incidents have happened too often in recent months to be a mistake. They reflect a cultural and ethical deficit endemic to the way global business is being done with despotic regimes.
Among the factors that are causing a crumbling of the pillars of confidence, the subprime mortgage scandal also figures prominently. Here, once again, the too-clever-by-half characters who concocted these elaborate schemes and got paid a sultan’s treasure for their efforts have turned out to be not quite as clever as they wanted us to think. It is unlikely they will have to repay any of the stratospheric bonuses they were receiving while creating these artifices that, like the dot.com bubble and the Enron-era accounting shenanigans, foolishly attempted to defy the rules of basic economics and common sense as only those infused with the curse of hubris will do.
And the figures touted for their wisdom and vigilance who are supposed to be monitoring the actions of these other bright fellows whom history has shown to have gotten carried away with themselves on more than a few occasions, seem not to have been as wise and as vigilant as advertised. Having underestimated the effects of these toxic credit toys before with assurances that the subprime mortgage defaults would not intrude into the broader economy, one wonders if they are any better prepared for the wider economic crisis that seems to be looming.
There will be many casualties before the full extent of the great unfolding 21st century credit debacle is over. There have already been a few CEOs who are taking a very well paid early retirement. More will follow. Some companies will not survive. The stock market will continue to experience unsettling jolts, like its more than 600 point drop this week. But, unfortunately, it will be the ordinary consumer —not the central bankers or the treasury luminaries or the credit agency raters or the boardroom directors who permitted this fiasco and were blind to its early signs— who will suffer most from the turmoil and set backs that lie ahead. So too will the idea that we can look to the icons at the top to do the right thing because their wealth and privilege bestow on them a higher level of accountability to do the right thing. That moral touchstone seems to have vanished, along with the primacy of the common stakeholder —something that has been a recurring theme at Finlay ON Governance.
These events have been the predictable consequence of what has amounted to decidedly subprime leadership and ethics in our boardrooms and in our institutions of government over the past number of years. They are a harbinger of the further crumbling of the pillars of public confidence and trust, which make them our choice for the Outrage of the Week.
An essay on icons of privilege and power in a skeptical world
Here and there, the turning leaves of autumn have begun to fall. A few leaders, or those who would have the world cling to such notions, have already preceded them. Alberto Gonzales has finally ended the torment of his pathetically inept performance as U.S. Attorney General, his tumble from a post he never should have held no doubt accelerated by the high-ranking members of the senate judiciary committee from both parties who publicly questioned his integrity. In addition to possessing unimpeachable credentials of honesty, it is always a good idea for holders of important public office to have —and be seen to have— an IQ above room temperature. It is hard to imagine an Attorney General in the 21st century who could make John Mitchell, Richard Nixon’s disgraced and eventually imprisoned AG, look better. But with his almost terminal state of amnesia about what was happening around him and his frequent reconstruction of key events which was later discredited by first-hand witnesses, Al Gonzales, the good friend of President George W. Bush, seems to have made that feat his defining accomplishment.
U.S. Senator Larry Craig (R-Idaho) fell from office on the floor of a men’s washroom of all places. But with his guilty plea to a misdemeanor charge, which he later recanted, followed by the announcement of his resignation last week and its sudden reversal a few days later, it would seem that Senator Craig has revealed an almost criminal level of indecision which itself should constitute grounds for his departure.
Former senator and recent TV star Fred Thompson’s entry into the Republican race for president would have fallen considerably short of the high expectations he generated —if it had ever gotten off the ground. A formal announcement on Jay Leno? Is this man really running for president or is he just planning to play one on TV? Many are already asking why this grumpy looking late entry thinks he could, or should, be elected president. His early appearances in Iowa and elsewhere suggest he hasn’t gotten around to figuring out the answer yet. Call in the Law and Order screenwriters.
The war in Iraq is increasingly viewed by Americans as the greatest foreign policy blunder in the country’s history. With the decline in support for the war, the popularity of its presidential chief architect swiftly follows. A majority of voting Americans believe the war has been a mistake and is not worth the cost. Only 26 percent approve of President Bush’s handling of the war, a figure that brings him perilously close to the low reached by President Lyndon Johnson during Vietnam.
In Toronto, movie stars have descended upon that city’s annual film festival in their private jets and block-long limousines. The carnival atmosphere of actors, groupies, paparazzi and high-powered parties has once again overtaken the town —or at least its better bars and hotels— that regularly appears in movies as New York, Boston or Chicago but rarely its actual self. It is an industry that is given to illusion, where it is difficult to distinguish between facts and myth and where hype often overshadows reality. Some stars are at the festival to promote their newest films. Others are there to promote their special cause and just coincidentally have a new movie to promote, too. Is it not remarkable how things work out with almost mathematically serendipitous precision for those with wealth, fame and cosmetically enhanced features?
Efforts to make the world better on the part of those endowed with privilege and opportunity are always to be commended. But sometimes, between the posing and the parties, the lavish displays of self-indulgence and the overreaching strides of the ever-glittering ego, the gravity and significance of the cause seem to get lost somewhere in the back of the limousine.
Why do so many leaders seem ultimately to be impostors in that role and ill-suited to its demands? Why do so many celebrities need to have their favorite causes accompanied by a traveling sideshow of parties, acolytes and five-star hotel suites? I suppose one should leave those answers to the psychologists. But even to the untrained eye there seems to be a narcissistic compulsion on the part of some members of the rich and powerful for constant attention and adulation. The applause and approval of the crowd become an irresistible addiction; the exercise of influence and power a thirst that can never be fully quenched. We are seeing the rise of what I call the virtue celebrity, where the pursuit of charitable endeavors and the recognition they bring has become one more weapon in the arsenal of personal and career marketing on the part of stars and billionaires. It is a world where success and public approbation has always required a good publicity agent. Now it requires a popular social cause as well.
Yet the more rich and powerful leaders and celebrities become, the more out of touch with reality they seem to drift. Britney Spears, Michael Jackson and Bill Clinton during his Monica days spring to mind. So does the procession of disgraced billionaire business figures and those more recently caught backdating stock options in order to grab a handful of extra dollars. More than a few have resorted to philanthropy and the pursuit of a socially laudable cause as a means of repairing a reputation damaged by their own misconduct or trying to impress regulators and prosecutors in the midst of investigations of wrongdoing. There is, it seems, never a shortage of announcements of gala dinners for yet another award ceremony or full-page advertisements extolling some stock option-rich benefactor whose endowment will be honored by his name appearing in large chiseled letters over the transom (the exterior of the Rotman business school building at the University of Toronto, for instance, displays the name of the donor financier in eight separate locations before you even reach the lobby). It becomes difficult even for the Panglossians among us not to occasionally wonder if such exercises are more about the feeding of oversized egos, and the creation of more places for the exalted to further exalt one another, than they are an authentically altruistic desire to make the world happier, healthier or wiser.
Some, of course, are genuine in their aspirations to make the world better. But a litmus test for sincerity is often humility —one of those rather underrated virtues that mothers try to teach but regrettably enjoys few adherents in the pantheon of the self-elevated.
Having worked with many of these kinds of people over the years, I have been struck by the fact that while they bask in the title and adulation that goes with being a public figure or celebrity connected to a special cause, often they fall measurably short when set against the lives, actions and sacrifice of more ordinary folks. The most impressive leaders I have known are those we generally never hear about. They are among the millions of individuals quietly performing acts of leadership and philanthropy who would never dream of making a side show out of it or posing for celebratory photos. They know their own limits and have a sense of perspective —two attributes which often elude the high-profile elite. They mentor the kids from broken homes, help out at the local hospital and travel to far-off parts of the world to fight hunger and disease. They seek no reward or title. They are always dipping into their own pockets to help out. You will not see their great feats of daily heroism on network TV, nor will you read about them besmirching the office they hold in the New York Times or elsewhere. They go about the important business of helping and inspiring others with a quiet dignity and strength of character that is often infectious. They are cut from the same powerfully modest mold as Lou Gehrig and Jackie Robinson —two of my personal heroes. They don’t need gala dinners, praising cover stories in major magazines or induction in, say, the Order of Canada whose membership still includes convicted felon Conrad Black and fugitive from U.S. justice Garth Drabinsky. And while many are incredibly generous in their charitable giving, they would not dream of having something named after them. Unlike the nouveau billionaire class, who seem to need the accompaniment of a brass band, klieg lights and a posse of publicity agents every time they make a donation, several millionaires I know write substantial checks each year and don’t even bother claiming the gifts for tax purposes.
The world will always need its larger than life figures —its Winston Churchills, its John F. Kennedys, its Pierre Elliott Trudeaus— to envision and inspire in new directions. They are few and far between, as their successors in office regularly confirm. It will always be captivated by its screen stars, though hopefully will not elevate them to the status of entire planetary systems rivaling the discoveries of Galileo. But from the boardroom betrayals of Enron and Hollinger and the epidemic of greed illustrated by out-of-control CEO pay to the quagmire of Iraq and the primacy of the privileged which has given rise to the greatest income gap since the 1920s, it is a world that is too often let down and disappointed by those whom it has entrusted and revered. We have discussed this phenomenon before in the context of the vanishing stakeholder. It is a reality that will increasingly see society turn to what I call its quiet heroes —the everyday leaders around us who are changing the world for the better in the voluntary organizations they run, the causes they support and the social needs they fill. Perhaps astonishingly to some, they are doing it without scandal, award ceremonies, private jets or gas-guzzling limousines.
If conventional leaders and cause-oriented celebrity icons are genuine in their aspirations and are looking for a model to work and live by that gets the job done well, they could do worse than follow the example set by their more unassuming counterparts.
In too many ways, the primacy of the ordinary individual —as citizen, employee and investor— which has long been the backbone of modern social progress, is being left to disappear amid an onslaught of privileged special interests, civil rights-invading bureaucrats, unwatchful corporate guardians and greedy financial contortionists.
In Canada, it was the no-fly list, which the Harper government created to ban certain individuals from flights inside or leaving the country. In the United States, it was the no-sue list, which directors, executives and corporations now find themselves on courtesy of the Supreme Court’s 8-1 decision raising the bar for shareholders to commence litigation in respect of civil fraud. While they may seem unrelated, these two decisions share a common connection with an unsettling trend in the exercise of corporate and government power.
In too many ways, the primacy of the ordinary individual —as citizen, employee and investor— which has long been the backbone of modern social progress, is being left to disappear amid an onslaught of privileged special interests, civil rights-invading bureaucrats, unwatchful corporate guardians and greedy financial contortionists. We call this the Vanishing Stakeholder. Left unchecked, it is a trend that threatens to undermine the fabric of our society, our prosperity and our freedoms.
The U.S. decision, which was handed down this week, imposes standards that most investors, because they do not have the power to subpoena documents or to interview corporate parties such as directors and executives, can never meet. As a result of the Court’s ruling, investors must show “cogent and compelling” evidence of intent to defraud. Some, including Justice John Paul Stevens who dissented from the decision, believe the standard being set for this kind of civil litigation is as high as, if not higher than, that applied in criminal prosecutions. The decision pleased Bush administration officials and a large platoon of business lobbyists who have been moving toward a general loosening of post-Enron era reforms of the kind found in the Sarbanes-Oxley Act of 2002.
Under the Canadian program, which came into force this week, the government will identify people who pose “an immediate threat to aviation security” and place them on its no-fly list, without due process or prior notice. They might be part of a terrorist group, or, as Senator Ted Kennedy found himself after the U.S. introduced its version, someone with the same name as an embargoed passenger. They will only find out that they are on the list —or that they have been confused with some other person of the same name— just as they are about to board a plane. And the onus rests upon innocent people improperly placed on the list (has there ever been a major government effort that has not been bungled by bureaucratic incompetency or twisted by the vanity of some power drunk official?) to prove their innocence while being interrogated by law enforcement officials at the airport, in a closed room and without legal counsel. We thought that only happened in authoritarian regimes and in George Orwell’s fictional world.
But in the world that is becoming all too real for the treatment of individuals, shareholders are regularly seen as an inconvenience who need to be treated like annoying children instead of the owners of the corporate enterprise which they actually are. Citizens are viewed as suspects and potential lawbreakers in a time when even the library reading habits of young children cannot escape the alarmed and ever watchful gaze of law enforcement officials.
No sensible person wants to make it easier to clog the courts with frivolous lawsuits or for terrorists to plot their evil plans. But there has been a rising tendency of late to allow big corporations and big governments to become even more powerful and to make more difficult the ability of ordinary stakeholders to hold them to account. When that happens, fewer individuals, whether investors, employees or citizens, are inclined to stand up and assert their rights. Many fear the fix is in and that it is impossible to challenge the excesses and abuses of either government or business.
Last month, the U.S. Supreme Court made it more difficult for workers to sue in cases of pay discrimination under Title VII of the Civil Rights Act of 1964. In a 5-4 opinion, the Court held that such lawsuits —which almost invariably involve lower paid women— must be brought within 180 days of the initial alleged discriminatory act, not when the worker discovers it. And finding out what others in a factory or office are paid is not the easiest thing. Workers should not have to become pay stub sleuths in order to ensure that they are being fairly treated.
Ordinary investors, like average workers, are also getting the back of the hand from those in charge. Just look at the number of shareholder resolutions that have failed to win a bare majority in recent months when boards and management have opposed them —even resolutions like say on pay, which would have had only an advisory influence upon compensation committees. As for shareholder lawsuits —frivolous or otherwise— they are hardly an epidemic. Their numbers are considerably down in the years since Sarbanes-Oxley.
An equally disturbing trend is seen in the swallowing up of North American and European business icons by the elusive and expanding private equity whale. The stake that individuals have had as investors, and the benefits that come from being able to witness transparently the use of economic power and how it is wielded, seem now to be regarded by many commentators as only a passing fad in the natural evolution of a more concentrated form of capitalism —concentrated in fewer and richer hands, that is.
The current model of the publicly traded, widely-held, corporation, and its espoused link to the well-being of individuals, developed over a considerable period of time. Symbolized by the huge American flag that drapes the facade of the New York Stock Exchange, the motivating idea was that individuals could be something more than cogs in the wheel of capitalism; they could be the owners of its engines as well. Under this vision of the capital markets system, Wall Street and Main Street were inseparably linked. This idea was taken even further in the aftermath of the attacks of 9/11 with the posting of military personnel around the New York Stock Exchange. An attack on Wall Street was generally considered to be an attack on the financial nerve center of America itself.
Corporate leaders have consistently expressed the view that individuals have a genuine stake in American business —through pensions funds or mutual funds or as direct investors—and that such roles create a level of harmony between what’s good for most folks and what’s good for the modern corporation. As more and more companies begin to be taken over by essentially anonymous actors, or become absorbed by entities controlled by a few multi-billionaires, those interests may be starting to diverge. Indeed, there is some concern now as to exactly what role countries like China, headed by a dictatorial and communist regime, will have as their level of investment and alliance with private pools of corporate gobbling capital expands. Is this in the long-term interests of either democracy or society? Are policy makers and business leaders even pondering these kinds of questions? Again, the role of the individual in these new equations of commerce and capital seems essentially overlooked, if not regarded as entirely disposable.
The trend in this regard is paralleled by another significant phenomenon in the United States: widening economic division as reflected in the fact that the top one percent of households controls more wealth than at any time since 1929. As we have noted previously, it was a gap that ended abruptly –some might say catastrophically– at that time. There is little evidence that those at the top today are giving much thought to the impact of the current trend or exactly how much further it can be permitted to advance before serious damage is done to the social contract that has existed between the class of ordinary individuals and those in the upper tier of power and wealth. The average stakeholder has been just as absent from the cares of the corridors of privilege as he and she has been from participation in the income gains enjoyed in recent years. And, as we have documented repeatedly on these pages, few inside major corporations, much less the wider workforce, have seen anything approach the soaring level of pay advancement or galloping annual increases that CEOs and senior executives have received over the past decade.
Bear Stearns’s $3.2 billion bailout this week of a troubled hedge fund, and the sudden decline in the Dow Jones average as a result, is just one more in a series of telling reminders of how dependent individuals are on the guardians of capitalism and the watchdogs of sound business practice, including the credit rating agencies that seemed to miss the red flags. Recent testimony at the trial of Conrad Black from the high profile directors on Hollinger International’s audit committee, who admitted under oath that they did not read documents put before them, provides a vivid illustration of how boards so often fall short in their duties as stakeholders’ sentries. We would not be surprised to see further disturbing developments over the next several weeks as the world discovers (again) that the hedge fund kings and Wall Street wizards have not entirely rewritten the laws of market physics and may not be quite the extraordinary wonders their publicity departments or their huge fees would suggest.
As the Outrage of the Week prepares to take some time off for the summer, we think it is appropriate to leave on the larger note of concern for what we see as the receding role of the individual in society. We view this trend, where leaders in business and government are a little too quick to trample on a right here or remove a benefit there because it is the expedient or profitable thing to do when it comes to dealing with average stakeholders, as emerging on too many fronts to ignore.
Some of us actually believe that we live in a democracy. We like it that way. We take its freedoms and responsibilities seriously, including the idea of a market economy where individuals ultimately control even the mightiest pools of power. We are mindful of the continuing sacrifices made by men and women in countless battles around the world who have made our freedoms possible. If we wanted a different system, we would be living under any number of regimes that do not share a respectful belief in the role of the individual and who take a dim view of the rights of citizens or investors when they are exercised. The worry is that too many entrusted with power here are apt to forget that under our concept of democratic government and accountable markets, they are answerable to the people, not the other way around.
The Outrage may drop in from time to time, but will otherwise return to its regular weekly slot in early September. In the meantime, we thank our readers —affectionately known as our Outrangers— for your many suggestions for this well-read feature at Finlay ON Governance. We understand it is a frequent topic of conversation around the water cooler and at the kitchen table and has caught the eye of a few tycoons and political shakers on more than one occasion.
We wish them and everyone a safe and pleasant summer. There is much in the use and abuse of power and leadership that properly warrants our indignation. But there is also a good deal in the world around us among families and hard working people and in the wonders of nature that commends itself to our admiration and our gratefulness.
We hope you all have a chance to experience the latter to the fullest over the next several weeks, and that our many readers in the southern hemisphere have an equally pleasant winter.
