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.

We Have Our Own Fraud Scheme, Thank You..

The Rogues’ Gallery of the increasingly tarnished modern Gilded Age is getting crowded. The Securities and Exchange Commission today accused Robert Allen Stanford, CEO of the Stanford Financial Group, of running a “massive ongoing fraud.” The SEC said the bank division of the group could not account for $8 billion it was supposed to have on deposit in Antigua. Mr. Stanford apparently could not be reached to offer any clarification. In fact, he seems unreachable altogether. Federal officials have placed the Stanford Financial Group in receivership.  Investing clients are already lining up claiming losses.

Sir Allen, as he prefers to be called as a result of his knighthood from that island nation, boasted to investors in December of 2008 that his funds were never invested in Bernie Madaoff’s alleged Ponzi operation. We got a hint why today. The SEC thinks he had his own scheme going.  He didn’t need anybody else’s.

Conrad Black’s Losses Mount; Chances of a Presidential Pardon Do Not

Former newspaper baron Conrad M. Black’s losing streak continues unarrested.

He lost control of his Hollinger companies and all his prized newspaper holdings. He lost what was left of the Argus group he essentially inherited.  He lost his criminal case, which was brought by the United States Department of Justice, and his appeal of the conviction taken to the 7th U.S. Circuit. He then lost in his appeal of that failed appeal. (more…)

Yahoo Flees from Boarding Microsoft’s Titanic

The board of Yahoo has opted to reject Microsoft’s bid to acquire the company. The decision came after a series of meetings earlier this week. It was a wise decision.

Nothing illustrates the reality of Microsoft more than the Vista operating system that is its showcase: late on arrival, bloated in its functioning and incompatible with much of the world it depends upon. Microsoft operates a command and control culture that is in a state of constant paranoia, always fearful that customers are trying to get the better of it. So inward looking has it become that in the period it was trying to produce its newest operating system -the one that has become so much the bane of users that many demand the old XP system in their new computers -Facebook, MySpace and YouTube were conceived, developed and became a consumer phenomenon. Microsoft could have developed these applications, just as it could have done and become what Google has. It was too busy being big and becoming overly confident, still clinging to its anti-trust mentality and obsessed with the idea that customers are always trying to circumvent its software activation process.  Some companies aspire to become customer-centric.  Microsoft has turned customer-antithetic into a brand.

Microsoft has made a number of ground-breaking strides in its time, but it is doubtful that, as it is currently conceived, a match with any organization that prides itself on innovation and agility would make for a positive union. As the world learned from the costly AOL-Time Warner merger debacle, it takes more than money and high priced stock to make a happy corporate marriage.

Microsoft’s days as a transformative force in the world of personal computers and the Internet, barring a sea change in culture and attitude, are on the wane. The ability of the company to transfer its core values and management skills, honed in an era of market dominance symbolized by one-license-per-paying customer, to a more open 21st century cyberspace environment where success more and more is defined by the extent to which value can be added to the customer relationship without adding cost to it, is highly problematic. This is reality that long ago should have prompted a series of meetings by its own board to determine what has gone wrong with the Titanic of modern software companies, and what can be done to prevent it from meeting a similar fate. With its boardroom still on the Microsoft version of a Morse code operating system, the company’s directors will be painfully slow to decipher the message.

Outrage of the Week: The Crumbling Pillars of Public Confidence

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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 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.

Yahoo’s CEO Pay Blunder Shows Wider Boardroom Folly

In too many boardrooms across North America, executive compensation has descended into the farce of rewarding CEOs for super-human abilities they don’t possess, on the basis of performance they frequently didn’t achieve, with money from compensation committees that is not theirs.

Do a search on the Internet for the highest paid CEOs and shareholder outrage, and the name Yahoo soon pops up. The compensation of the company’s now former CEO Terry Semel featured prominently in a recent AP roundup on executive pay. I was interviewed by the report’s author and had a few comments in the piece about CEO compensation in general and about the boardroom culture that permits its abuses. Yahoo lagged behind Google in profit growth and stock performance. Still, that did not prevent the board from awarding Mr. Semel a 2006 package of more than $71 million, according to the AP survey. That amount raised the ire of investors. This week Yahoo announced that Jerry Yang, a co-founder of the company, will replace Mr. Semel as CEO. Mr. Semel’s departure from the top slot was not a surprising development.

What is surprising is that Mr. Semel’s previous pay package of a neck-snapping $230 million prompted barely a mutter. That’s one of the things about CEO compensation. Reactions to it can change very fast. Investors might not care how much a CEO receives when the stock is performing well. When shareholders are giddy, the sky seems to be the limit. But when the party dies down and the reality of lower stock levels hits, they can get very testy. What is missing is the recognition that a culture of excess on the part of directors, which seems to dominate too many North American boardrooms, like a boorish in-law at the family reunion, once arrived is slow to depart. Yahoo had such a culture.

Indeed, nothing reveals the folly of its compensation regime more starkly than the loony idea that it needed to enrich the fortunes awarded to its senior executives by giving them something called retention pay. Each of Yahoo’s top executives —Terry Semel, Farzad Nazem and Susan Decker— received a bonus for staying with the company. Think about this for a moment. They collectively own millions of Yahoo shares. Is it reasonable that, with so much invested, they would have to receive additional incentive to stay with the company and try to improve the value of their holdings? What better than a top position inside the company to contribute to your own financial growth? Yahoo’s board would have been better off taking the stance that if someone with that kind of stake still needs extra inducement to stay, it has the wrong person in the job.

But in a contemporary corporate culture where CEOs seem constantly to be crying out “motivate me,” ever obliging compensation committees, aided by clever pay consultants whose creativity would make a science fiction writer seem dull, can dream up endless reasons to give more of the store away to management. They seem considerably more challenged when it comes to holding back. Another interesting sidebar in the Yahoo compensation story is how much the board, and management, were obsessed with the subject. Last year (the most recent figures available) Yahoo’s compensation committee met on 12 occasions. That’s even more than its audit committee.

The huge sums being paid out to Yahoo’s executives prompted the company to go back to shareholders this year to ask that more stock be earmarked for options purposes and prescribed vesting periods be eliminated for restricted stock. They had no trouble getting support for the widened gravy train. That’s another part of the problem, by the way: there doesn’t seem to be a culture that understands the concept of “too much,” or even enough, when it comes to executive compensation. No form of contortion seems to be beyond the ability of boards and management to twist themselves into in order to try to show themselves deserving of still more. At a certain point, it becomes as demeaning to witness as it should be to engage in.

Yahoo, like the case of Home Depot and Bob Nardelli before it, provides yet another high profile illustration that Pharaonic pay does not always translate into superior results, and —as I have suggested and on these pages and elsewhere— that there is no proof that even superior results cannot be achieved by more modest compensation.

For the privilege of paying its CEO nearly a third of a billion dollars over the past two years ($451 million since 2001), Yahoo has seen its growth rate decline and its stock gains flag. Its brand has been eclipsed by Google, which has established itself as the preeminent knowledge factory on the Internet. By any reasonable standard, such performance should have been available for far less. But the question of whether boards really have to pay that much for the performance being sought never occurs in many boardrooms. And Yahoo’s board, like others, had to be hit with an onslaught of shareholder anger before it got the message and acted.

When wildly excessive and unjustified levels of CEO pay are the product of the best thinking in Yahoo’s boardroom, you have to wonder what other broader strategic decisions on the part of directors are equally lacking in sound judgment and vision. One already seems to be taking shape —appointing Mr. Yang, who is 38 and has no experience running a publicly traded company, much less one with the profile and capitalization of Yahoo, to the top executive post. Though clearly not intended as such, I suspect the move may be a harbinger that Yahoo’s days as a stand-alone entity under its current ownership configuration may be numbered.

As noted previously, CEO compensation was not always like this. It has been transformed into an instrument that, while creating a new class of super rich, is also undermining public respect for the institution of modern business and the economic system that underpins it. But then the current class of CEOs and directors don’t really see themselves, much less act, as guardians of capitalism for the well-being of future generations. They have turned a relatively minor aspect of business decision-making —executive pay— into a high profile, headline-grabbing lightning rod that has become an emblem to much of society of everything that is wrong with business and its self-aggrandizing leaders.

In too many boardrooms across North America these days, executive compensation has descended into the farce of rewarding CEOs for super-human abilities they don’t possess, on the basis of performance they frequently didn’t achieve, with money from compensation committees that is not theirs.

No wonder the scam is hard to stop.