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.

Disorganized money markets mask mob activity: report

June 8, 2011 | 13:24

Jessica Murphy, Parliamentary Bureau | QMI Agency

Canada’s patchwork securities regulation system gives the mob plenty of places to hide, a new report indicates.

The draft government report probing mob meddling in Canada’s financial sector, obtained by QMI Agency, suggests a patchwork of securities regulators across the country make it hard to pin down the amplitude of financial crime.

“Anyone wishing to understand the scope and seriousness of securities offences in Canada appears to be stuck with manually parsing the overlapping databases of regulators, and self-regulatory organizations,” according to the report, one of three commissioned by Public Safety Canada to shed light on how organized crime operates in Canada.

The final draft, likely be tabled late fall, will focus on the Toronto Stock Exchange and Montreal’s derivatives market.

The news doesn’t come as a surprise for J. Richard Finlay, who heads up the Centre for Corporate and Public Governance in the U.S.

He warns that due to our “weak system of balkanized securities regulators and lack of any federal focus on the matter, Canada makes an easy target for ill-intentioned players.”

Finlay recommends Canada adopt a national securities regulator, a proposal the Conservative government is currently trying to push forward.

The Supreme Court is set to rule in the coming months on the whether the proposal for a new Canadian Securities Regulatory Authority is constitutional.

Alberta, Manitoba and Quebec oppose a national regulator.

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.

The Black View of Ted Kennedy

Has the far-right become so bereft of ideas and spokespersons to generate its ill-tempered discussions that it now has to turn to institutionalized felons like Conrad Black for its inspiration?

Among the more puzzling of the commentaries prompted by the passing of Edward M. Kennedy, the long-sitting senior Senator from Massachusetts, is surely the one penned at Coleman Correctional Facility in Florida by Inmate No.18330-424, otherwise known as Conrad M. Black.  His comments appeared in the National Post the day Mr. Kennedy lost his final battle with brain cancer at the age of 77.

Mr. Black wasted no time in pronouncing the late Senator to be a man of mediocre achievements who will be remembered for nothing outstanding.  He also felt it necessary to point out the womanizing proclivities of the Kennedy men, opined that the Senator was probably drinking when his car left the bridge at Chappaquiddick, and rated John F. Kennedy’s presidency as unspectacular –all this before the first head count of the warm prison morning.

Both Mr. Black and Mr. Kennedy enjoyed favored childhoods and private educations, which, along with some early career accomplishments, came courtesy of their families’ wealth and power.  Both were trained as lawyers.  Both were caught cheating at school and paid a price for it.  The Senator made his share of uniquely personal mistakes which saw tragedy strike with an even sharper blow than a more prudent man might tempt. But the difference is that while Mr. Kennedy devoted himself significantly to championing the cause of the less fortunate throughout most of his professional life, and certainly with a fevered pitch in the past two or three decades, the titled, honored and enormously wealthy Mr. Black tended to see himself as a victim ¾of the media, of a Prime Minster who did not think Canadians should be called “lord,” of the U.S. justice system, of overly demanding shareholders and of employees and customers who were regularly given to epidemics of shoplifting, as he was prone to point out in connection with his fabled Dominion grocery store empire.  Mr. Kennedy, for most of the past number of decades, sought to atone for his shortcomings and his sins by living a responsible life and in the work he pursued for the benefit of others.  Mr. Black has yet to show the slightest remorse for anything he has done, expect perhaps for not fleecing shareholders –whom he dubbed a cheap source of capital– more.

While Mr. Kennedy carved out legislative compromises that helped millions of children, the poor and the elderly, Mr. Black was obsessed with chiseling out a few million more for himself, even if it meant defrauding investors in the process.  While Mr. Kennedy gained admiration for carrying the responsibilities of several extended families on his shoulders and was known for his unstinting generosity toward those he did not even know, Mr. Black became infamous for carrying out boxes of evidence in an obstruction of justice spectacle that led him to his current confines in Florida.

It is perhaps not surprising that Mr. Black, even before the Senator was buried, would use the opportunity to strike the low blow, to find a chance to snarl at a man who uplifted so many, and to pronounce himself unimpressed with an historic figure who exemplified liberal values people like Mr. Black detest.  Mr. Black’s world is never quite secure when there are those who champion a better minimum wage, struggle relentlessly for more accessible heath care or oppose a war that does not need to be waged and should not be fought, as Mr. Kennedy did with a passion few could rival.  Mr. Black, of course, was an early supporter the war in Iraq.  As to the idea of a more level playing field so that others might have a shot at the American dream, Mr. Black’s world rests on the idea of privilege and private gain and, above all, never having to “reenact the French Revolutionary renunciation of the rights of the nobility,” as he so famously declared.

Mr. Black, as both the verdict of the courts and public opinion has decreed, has a few problems in the judgment department.  One does not need to be a great lover of the sea, as Mr. Kennedy was, to know the consequences that can befall when one is separated from a compass, either of the moral or the magnetic kind.  Mr. Black has been bobbing along unmoored and unguided for some time.

As the object himself of great speculation about his culpability in a much larger fraud against the Hollinger companies (see Breeden Report) and having made a loud and persistent case for prosecutorial overreach in connection with the charges that saw his criminal conviction, Mr. Black, one might have thought, would be disinclined to conjecture about Mr. Kennedy’s “driving under the influence of alcohol” while operating the car that went off the bridge and led to the tragic death of Mary Jo Kopechne.  That he would engage in such gossip without evidence or fact in a way that just gives his adversaries more standing to do the same about him, suggests that Mr. Black is no longer –if he ever was– in possession of the strategic horsepower enjoyed by the diminutive French Emperor, whom he tended to idolize.

What is most staggering about all of this is that, of the countless candidates at its disposal to render meaningful comments about the life and times of Mr. Kennedy, the National Post and its publishers thought that they should turn to Mr. Black. Has the far-right become so bereft of ideas and spokespersons to generate its ill-tempered discussions that it now has to turn to institutionalized felons for its inspiration?  Nor does it betray nothing less than an astonishing lack of journalistic judgment that they would permit an incarcerated and discredited business figure to rate the Kennedy family’s accomplishments when Mr. Black has shown such a peculiar gift for losing the empire he effectively inherited while so many of the other corporate jewels he touched, not to mention his Canadian citizenship and his freedom, turned to ashes in his own hands.

The only explanation for this singularly low contribution to the discussion about the passing of a major figure in American life is that the National Post’s publishers, principally the Asper brothers, also began their lives from a predicate of inherited privilege and wealth.  They obviously prefer Mr. Black’s narrowly self-serving, Darwinian view as to how one conducts oneself in the face of such fortune, and not Mr. Kennedy’s more universally ennobling vision of what can be done to help make the lives of the less favored more enriched.

Our thoughts about the rise and fall of Conrad Black can be viewed here.

Drabinsky Gets 7 Years, and Canada Finally Gets Some Respect For its White Collar Criminal Justice System

Seven years for a high profile corporate fraud may not seem like much compared with the sentences handed out in the United States (see Jeffrey Skilling, Bernie Madoff et al.), but it is an eternity for Canada.  The country that produced Conrad Black and Garth Drabinsky has become notorious for its light touch when it comes to dealing with boardroom felons.  But something, perhaps that very fact, appeared to prompt Judge Mary Lou Benotto to take a different approach and hand out a sentence today that was toward the higher end of what was expected – including on these pages.   It is even more than the 76 months Conrad Black, Mr. Drabinsky’s good friend and former Livent board member, got for his corporate fraud adventure.

The seven years that elapsed between charges being laid against Mr. Drabinsky (2002) and his sentencing (2009) shows that Canadian justice can move painfully slowly.  But today also demonstrates that, in the end, reasonable justice – not the Bernie Madoff-type American overkill or the wet noodle approach so often handed out by Canada’s top securities regulator – can prevail and the time can be set to fit the crime.  Even for the rich and famous.

We had some harsh things to say about some of the wording in the judge’s verdict and the slow approach taken in the sentencing process.  But now it appears that Madame Justice Benotto has discharged her duties with fairness and with firmness.  The security of Canada’s capital markets at home and their reputation abroad are better for her efforts.

Drabinsky’s Slow Motion Justice, Canadian Style

The long-running Livent legal drama shows that what passes for Canadian justice among white-collar offenders remains something of a mystery, like a glacier that moves imperceptibly.

You have to wonder what Livent’s former investors are thinking, or what others might be learning, about Canadian justice.  First of all, there were four convicted criminals on Livent’s board, which we were the first to note here.  That would be a record if it were not for Hollinger’s boardroom, which boasted a grand total of six felons.

Next, they have had to contend with the iceberg that is Canadian justice.  Garth Drabinksy and Myron Gottlieb were both charged with fraud in U.S. federal court in 1999.  It wasn’t until 2002 that they were charged in Canada.  Six years later the trial began, and last March a conviction was handed down.  In a much shorter span of time, Martha Stewart, Jeffrey Skilling, Sanjay Kumar, Dennis Kozlowski and Conrad Black, to name a few, were all charged, convicted and put behind bars.  Some are still there.  Livent’s duo were convicted in March of this year.  They will not be sentenced until mid-August, seven years after the Canadian charges were filed.  There will be appeals that will keep the crafty pair out of jail for many years.  Along with an appointed senate and a system where the prime minister selects judges for the supreme court and all other top courts without any constitutional checks or balances whatever, what passes for Canadian justice as it pertains to the errant white- collar community remains something of a mystery.  Nortel’s former CEO has yet to see the inside of a courtroom.   The Ontario Securities Commission seems to have forgotten about Hollinger and dropped an appeal in a high profile case it lost.  No one was ever convicted in the Bre-X fraud, the largest crime of its kind in mining history. None of this, including the lethargic handling of the current Livent case, is likely to change the image that Canada is soft on white-collar crime.

If that playbook is followed, Livent’s founders will spend a relatively short time in prison.  A sentence of between two-and-a-half and three-and-a-half years would not be surprising given the leniency Canadian judges have shown toward miscreants in the boardroom.  These courts have little trouble expressing outrage over a single mother who passes bad cheques.  When it comes to rich tycoons or theater impresarios, their disdain appears more muted, almost apologetic, for having to find someone guilty.  Livent’s founders will regain some measure of freedom within months of beginning their sentences.  Some of Judge Mary Lou Benotto’s decision reads in places like a publicity brochure for one of Livent’s productions and in others could pass for the citation during the awarding of an Order of Canada medal (which Mr. Drabinsky holds).

As to the proposal put forward by Mr. Drabinsky’s lawyer that his sentence include no prison time but rather a speaking tour on the topic of ethics in business:  In this fictional portrayal worthy of the stage, Mr. Drabinsky would find himself in the company of an interesting cast.  Ken Lay used to give such speeches before his conviction in the Enron case.  Bernard Madoff, when he chaired NASDAQ’s board, was seen as a strong advocate of robust industry regulation on Wall Street.  Michael Edwards, a former chairman of the Toronto Stock Exchange, was also considered a proponent of ethical and governance reforms, until he was penalized by the Ontario Securities Commission for his failures in the RT Capital (then a division of the Royal Bank of Canada) scandal some years ago.  He was also a member of the committee that brought forward the Exchange’s 1994 landmark corporate governance guidelines.  It was later discovered that he chaired a board at RT Capital that never actually met.  Ethics, it seems, is the last available refuge for the corporate scoundrel.

Having looked at the subject over several decades and given more than my share of speeches and media interviews on it, as well as advice to several governments and major corporations, I have found that it is a good idea for one to know something about the subject of ethics before claiming to extol it.  It requires a commitment to ethics as a core value, not as a convenient tool to avoid prison or promote good public relations.  Ethics might also entail some knowledge of right and wrong.  As far as Mr. Drabinsky is concerned, there has been no demonstration of remorse or appreciation for the wrong he committed and the injury he caused.

Canadian justice has moved at its customary glacial pace since the fraud at Livent was alleged in the Manhattan Office of the U.S. Attorney.  Perhaps all investors and advocates of a higher standard of justice in the boardroom and enforcement by Canadian regulators and the courts have left is the hope that by the time the sentence is handed down next month, it will not have melted into a puddle of meaningless platitudes where the offenders pay with empty words instead of a significant measure of their freedom.