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.

Lessons from the Botched EU Bailout and other TARP Follies

Ordinary people from Athens to Little Rock have had it with a bloated system where politicians take care of themselves, along with insiders and powerful interests when they run amok, and leave the public to scrimp, sacrifice and struggle to pay more debt.

As we predicted, the stock-lifting EUporia over the European rescue plan that arrived last Monday morphed into market-pounding fear and skepticism by Friday. The Euro currency is pretty much in a shambles, too.  It looks like another huge bailout plan, like the initial incarnation of the TARP that was supposed to buy up billions in toxic assets, has been widely rejected as impractical and one that cannot possibly perform as intended. European leaders and central bankers have been left scratching their heads and wondering what hit them after they emerged from their Chamberlain moment, having pronounced their version of economic peace in our time.

The problems of Europe, and indeed, other nations that have too long been on a debt joy ride to fantasyland cannot be solved by either the profligacy of more debt accretion or the draconian paternalism of the IMF. When economies need to grow, you can’t tax them and shrink them into expansion, which is what they need to pay off their debt.  The formula devised for Greece, which will see paychecks decimated, pensions slashed and taxes hiked, can have only one outcome — and it is neither pleasant nor a track to the growth that is needed.  Nor can you push a country into greater debt for its salvation any more than you can make an addict recover by giving freer access to the source of the substance abuse.

TARP-type bailouts have become a flashpoint not just for the markets but also for the electorate.  On this Super Tuesday of U.S. primaries, look to see Washington insiders who have been connected to these massive bailouts take a big hit.  By tomorrow, one-time Pennsylvania Republican Senator, turned Democrat, Arlen Specter, will have lost his chance for a sixth term.  Rand Paul, who has become a darling of the Tea Party, the quintessential anti-bailout brigade, is likely to receive the Kentucky Republican nod for the Senate.  Democratic Senator Blanche Lincoln will probably lose her bid for renomination in Arkansas.   Last week, it was three-term Republican Senator Robert F. Bennett of Utah who was turfed out by his party. This is just the opening act for the main event that will come in November, when the full effects of what we have dubbed turbo populism will see some seismic shifts in the political landscape and in the culture of excess that has come to define it.

Ordinary people from Athens to Little Rock have had it with a bloated system where politicians take care of themselves, along with insiders and powerful interests when they run amok, while leaving the public to scrimp, sacrifice and struggle to pay more debt.  They know that approach is fundamentally corrupt and cannot be sustained either by precepts of ethics or principles of economics.   That is the lesson of the bailout backlash in Europe and the anti-TARP movement in America.

Those in positions of power who ignore it do so at their peril.

The Examiner of Lehman’s Untoasted Boardroom Marshmallows

The court-appointed Examiner chose to continue the same lackadaisical approach to directorial performance and accountability in his search for answers as the directors themselves evidenced in their drowsy drift toward disaster.

A little noted statement in the report of the court-appointed Examiner in the Lehman Brothers bankruptcy reveals the extent of the deference displayed to the company’s former directors.

The Examiner admits in his report that he provided witnesses “advance notice” of the topics he intended to cover and that he allowed them to make use of notes and written statements before the interviews in order to “refresh recollection.” No doubt these were prepared with the assistance of legal counsel, whom the Examiner confirms represented interviewees in the “vast majority” of cases.   Significantly, the Examiner chose not to conduct his examinations under oath, and, if that’s not astonishing enough, no transcripts were ever recorded.  The Examiner preferred an “informal” approach over the formal depositions available to him.

This is how the largest bankruptcy in history conducted its search for information and how Lehman’s directors, who presided over the downfall, were allowed to take part in what amounted to a quest for the truth with all the rigor and intensity of a marshmallow roast – – without the fire.

We have long maintained that directors are among the most pampered class in the business world, accorded by society, the media, investors and the courts a level of deference and respect that has few parallels.  Time and again, it is this approach that has permitted directors to take shelter in the harbor of the disengaged and uninformed, giving rise to the appearance of men and women who, having been lauded in press reports and company statements just days or hours before as experienced and exceptionally accomplished, suddenly adopt the demeanor of amiable dunces in their hapless efforts to explain what happened and why.  This is what occurred in Enron’s collapse and before the fall of the Penn Central Railroad.  The spectacle of Hollinger’s confused directors at Conrad Black’s criminal fraud trial in 2007, where board members appeared challenged even in reading important documents, will also be recalled among astute boardroom watchers.

As we noted well before the company’s demise, and repeated here, Lehman’s feeble approach to corporate governance was well established by its board and the structure and membership it adopted.  It was, in our view, a significant and inevitable contributor to that downfall.  It is an outrage that the Examiner chose to continue the same lackadaisical approach to directorial performance and accountability in his search for answers as the directors themselves evidenced in their drowsy drift toward disaster.

The Frayed Plumage of the Davos Mentality

The czars and kings of Europe could not grasp why the people revolted against the high taxes, low wages, and hunger inflicted upon them by those who knew only opulence and self-aggrandizement.  The Davos mentality still cannot fully understand the resentment of a public saddled with massive unemployment and a bill for bailouts and social costs that soars into the trillions.

The annual winter parade of the puffed-up peacocks of privilege has come and gone at Davos.  The dire state of the world once again showed the courtesy not to intrude upon the gathering of major élites from business and government, permitting them to descend in their private jets and frolic at the best-catered parties in Europe.  Reality, as it generally does at the World Economic Forum each January, seemed to pass by, as well.

Last year, they missed the extent of the global financial meltdown – a big miss given that it is widely seen as the worst crisis in 70 years.  This year, they had trouble seeing what reforms are necessary to prevent such calamities in the future – or even that any are necessary.  In 2000, Enron CEO Ken Lay declared to his fellow Davos participants that his company was the “21st century corporation.”  In 2003, the gathering was abuzz over U.S. Secretary of State Colin Powell’s rock solid assertions that Saddam Hussein controlled “hidden weapons of mass destruction meant to intimidate Iraq’s neighbors.”   In 2008, former Treasury Secretary John Snow announced at Davos that any U.S. recession would be ”short and shallow.”

Reality, to those inclined to view it from the cloud-fringed temples of great heights or beyond the attended gates of deference and privilege, often appears fuzzy and ill-defined.

As it was with the monarchs of early 20th century Europe who presided over one calamity after another, those responsible for the failures and excesses that led up to the great financial crisis of the 21st century lack the vision to figure out the solution.  The czars and kings of that earlier era could not grasp why the people revolted against the high taxes, low wages, and hunger inflicted upon them by those who knew only opulence and self-aggrandizement.  The Davos mentality cannot fully understand the resentment of a public saddled with massive unemployment and a bill for bailouts and social costs that soars into the trillions that stems directly from the abuses, failures and negligence of those in charge of the world’s financial ship.  Like myopic despots who seldom bothered to read history, and inevitably stumbled into catastrophe over its unheeded lessons, these modern misguided princes of finance have already forgotten the events of the past year and seem headed for further anticipated collisions with the future.

Instead of striking an uplifting tone that shows the titans of Wall Street and its counterparts (or, perhaps, counterparties) actually “get it,” the spirit of Davos produced the grating sound of ingratitude and obliviousness.  Josef Ackermann, CEO of Deutsche Bank AG, talked about the “noble role” of banks and announced that the world should “stop the bank bashing, the blame game.”  Mr. Ackermann was chairman of this year’s forum at Davos.  Billionaire Stephen Schwarzman, a regular attendee at Davos, warned there could be costs to the public’s jaundiced attitude toward the banking system.  “My biggest concern is that, as a result of either proposals or tone, that financial institutions are going to feel under siege and their [sic] going to retreat with their extension of credit,” he told CNBC.  Lord Peter Levene, chairman of Lloyd’s of London, mocked government’s role in bailing out the financial system: “I’m from the government — I’m here to help. You guys in the industry don’t know what to do, so we’re going to fix it for you.”

How quickly they forget.  Citigroup, Bank of America, Wells Fargo, Bear Stearns, Lehman Brothers, Merrill Lynch, UBS, RBS, Lloyds, Fannie Mae, Freddy Mac, AIG and so many more, were all crumbling under the massive weight of writedowns and losses and a withering credit market that only government was able to repair.

Change, especially for those in the Davos world, often comes not in the reform that reality demands, but in the fantasy that overly indulged egos command.  Not surprisingly, there is a resistance in the world of high finance to adopting or supporting widespread financial reforms.  A reliance upon extended methods of liquidity and a zero Fed funds rate seems ingrained in business plans.  And in a culture where obsession with bulging bonuses still prevails, you have to wonder what kind of screwy financial Frankensteins are being assembled that may once again place institutions, and the public, at risk.  Paul Volcker, please take center stage.

Perhaps the irony is not entirely lost on the world that while many of its citizens shell out for the misjudgments of these Alpine participants, they also pay, as taxpayers, shareholders and customers, for this annual march into the snow drifts of élite folly.

When it comes right down to it, there are few thoughts the big players mount at Davos that could not be distilled into a simple Tweet.  Their use of technology and methods of transportation have changed, but in most other ways they are little different than the princes and grand dukes who trotted themselves out every so often to remind the people that they still existed, confusing – as receding fragments of supremacy so often do – vanity with relevance.

The World Economic Forum may have found its way onto YouTube.  But in most respects it is still a silent movie involving people whose attire might seem modern but whose sense of originality and connection with much of the world is as unfashionable and out of date as the Hapsburg dynasty.  One might have thought that the most costly financial crisis since the 1930s and the highest unemployment rates in decades would have produced a paradigm shift at Davos, too.  Instead, the world was treated to an encore performance of over-hyped élites desperately struggling to cling to any vestige of credibility and respect.  They have forgotten even the most recent past.  They have shown little vision for of the future.  This is not leadership.  It is an outrage.

As in previous years, we have included a YouTube film that gives an uncanny portrayal of the Davos mindset of another era.


Question for Secretary Geithner: What Does “Recuse” Mean?

New York Times

In his sworn testimony today before the House Committee on Oversight and Government Reform, U.S. Treasury Secretary Timothy Geithner reasserted that he had recused himself from making any decision in connection with AIG payments to Goldman Sachs in November 2008.  But he also testified that he was made aware by Fed officials that the payments had been made.  He knew this at a time when it was not public information and even Congress itself had been kept in the dark.

Some scepticism has been expressed on these pages before about the credibility of this scenario.

I have had some experience over the years in advising government agencies and public officials about issues related to conflict of interest and when there is a need to step aside.  When they do, they keep out of any aspect of the matter; they don’t get updates and briefings on the decision in which they did not take part.

The Committee needs to dig deeper into what the details of Mr. Geithner’s recusal were and what legal advice he had on that subject.  It also needs to look more carefully at what the mechanism was by which he became aware of the AIG counterparty decision – and why he felt he should be kept in the loop on the decision from which he says he removed himself.

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

Turbo Populism Arrives in Washington — and Anywhere Else it Wants

Wise leaders know that it is never sensible to underestimate either the forces of nature or the power of public outrage. Washington and Wall Street are about to receive an important lesson in history.

The winds of change can blow in both directions.  One year ago, they propelled Barack Obama into the White House on a current of support from every quarter of society. Today, the President finds himself pushing against mounting gales of outrage and discontent, leaving his popularity diminished and his agenda for reform in doubt.  This is his first, but likely not his last, major encounter with what we have dubbed turbo populism.  Fueled by the costs of two far-off wars, record deficits, unprecedented levels of CEO pay and historic rates of unemployment, what lies at the heart of this movement is a revolt over the power and perks of entrenched interests, whether they are found in Washington or on Wall Street.  By the time it ends, more than just Mr. Obama and a very unimpressive candidate who lost her party’s bid to retain the seat held by Massachusetts Democrat Edward M. Kennedy and before that, John F. Kennedy, will have experienced some very Rolaids days.

Abuses on Wall Street and excesses on the part of its key players which led to the worst financial crisis in generations are also featured actors on this stage of seething discontent.  The sight of bankers salivating over bigger bonuses has not gone over well among ordinary Americans, who continue to struggle with jobs losses, spiraling home foreclosures and a crushing national debt.  Mr. Obama’s stalwart support for Ben Bernanke as head of the Fed and Timothy Geithner as Treasury Secretary, both now facing major questions about their roles in the bank bailout and whether they are too close to Wall Street to serve the needs of Main Street, have placed the President in an awkward position for one who campaigned so vigorously on the promise of change.  Health care reform now seems to have been the victim of almost terminal mismanagement by the White House and by the Democratic leaders in Congress, who, in doling out deals to various senators in exchange for their votes, did exactly what Mr. Obama campaigned to change: the way Washington works.

Changing the way politics is done struck a populist chord on the campaign trail, where the forces of unease and the preponderant view that America was on the wrong track, gave momentum to Mr. Obama’s message.  But now, that same misdirected train has turned to face the White House and a political process that so many of its dissatisfied passengers still find intolerable.  What it seems many Americans, especially independent voting Americans, were banking on in Mr. Obama’s policies was that more hope would be focused on Main Street and less audacity would be displayed on Wall Street.

Over the past year, America and its admirers have witnessed the spectacle of business leaders who were paid hundreds of millions of dollars admitting that they did not see the coming storm clouds of their own creation.  But they still kept the hundreds of millions.  Men who were once trumpeted as financial titans and graced the covers of countless genuflecting magazines have been humbled in a way not seen since the 1930s.  Former Citigroup CEO Sandy Weill recently confessed that he always thought the company, whose stock continues to languish in a $3.50 shell of its nearly $50 glory, was “impregnable.”  He was apparently stunned by the extent of Citi’s meltdown.  “I felt that we should be able to weather that storm,” Mr. Weill recently told the New York Times.  No amount of miscalculation, however, prevented Mr. Weill from pulling in more than half a billion dollars in the late 1990s and early 2000s, or being appointed to the board of the New York Federal Reserve in 2001.  Icons like General Motors and Chrysler have become financial wards of the state.  Their descent to that status did not prevent those at the top from pulling in tens of millions in compensation, however.  On the tenth anniversary of what was then billed as the deal of the decade, the merger of AOL and Time Warner is now seen as the marriage from hell, costing tens of billions in shareholder value, lost earnings and vanished jobs.  Only last week,  three CEOs of leading Wall Street firms admitted to a Congressional inquiry that they were as surprised as anyone when the credit crisis struck in 2008.  The trio of Jamie Dimon (JPMorgan Chase), Lloyd Blankfein (Goldman Sachs) and John Mack (Morgan Stanley) were not compensated like anyone, however. Collectively, they were paid more than $300 million over the past five years.

Leaders often fail to heed the growing signs of change and disaffection when they are fond of basking in the reflection of their own egos instead of looking at where reality commonly resides.

The betrayal of elites, or at least the promise of their much-vaunted magic, both in business and in the political arena, the scale of the abuses and excesses of the few and the costs they inflicted on the many, the pervasiveness of leaders who place the claims of special interests over cries for public good – these are among the backdrafts and jet streams that have unleashed the winds of turbo populism.  And like the concept of stakeholder capitalism, a term we coined more than 20 years ago to mark the growing dissatisfaction of institutional investors and pension funds with the self-aggrandizement of management and the somnolent tendencies of boards, this latest wave of populist outrage will be coming soon to a boardroom near you.

Sometimes, change comes in battalions, as it did with the campus upheavals of the 1970s and the swelling protests demanding an end to the war in Vietnam.  Other times, it arrives clothed in the moral authority of a single man, as it did with Mahatma Gandhi and Rev. Martin Luther King Jr.  Occasionally, it will come in the form of a Tea Party or just one too many credit card holders fed up with paying interest rates of 30 percent when the bank is getting money courtesy of the Fed at zero percent.

Wise leaders, as history has shown, do not wait for a call from Western Union before they get the message the people are trying to send.  They know that it is never sensible to underestimate either the forces of nature or the power of public outrage.  Both have the occasional tendency to sweep aside pillars of man-made glory and monuments to entrenched interests as if they were mere castles of sand.

Welcome to the era of turbo populism.