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.

Over the past four years, the board of Countrywide Financial paid CEO Angelo Mozilo nearly $400 million. If he had made, say, just $100 million during that time, would the company be facing any greater crisis than it is today. If he had been paid twice as much, would his interests have been so much better aligned with investors in avoiding the current disaster that he would have invoked superhuman skills to do so? It is against the gales of logic and reason that the self-serving arguments of profligate boards and New Gilded Age CEOs quickly become demolished and shown for the rubbish they are.

Countrywide Financial is a name that has become synonymous with the fiasco in the subprime loan market. It rode the wave of dubious mortgages with apparently little regard for, or understanding of, the laws of economics or physics. When it was working, it paid off handsomely for many in the company, especially CEO Angelo Mozilo. Last year, Mr. Mozilo received $43 million in pay and a further $79 million from the exercise of stock options. Investors also profited in recent years as Wall Street roared with approval. But when the rising tide of success actually began to fall, as Mr. Newton always said it would, taking the subprime market along with it, a different view of Countrywide began to emerge. A search for reasons as to the company’s dramatic reversal and its role in the subprime disaster is underway. And it doesn’t take long before Countrywide’s board emerges prominently as a large part of the answer.

From the Penn Central bankruptcy in the 70s and the savings and loan scandals of the 80s to Enron, WorldCom and, more recently, Hollinger, poor corporate governance practices have been the Typhoid Mary of the American boardroom. Time and again we discover boards who were overly deferential to management and possessed neither the structure nor the information to exercise independent judgment. And time and again we see the damaging effects upon companies, customers and investors when directors have failed to direct. The symptoms of this affliction are again evident at Countrywide.

The first impression one gets looking at Countrywide’s board is that it is an old boy’s club. The board is comprised entirely of men. That’s usually a sign, as we have said before, of an organization that isn’t fully grounded in the 21st century and one that clearly is not responding to the gender realities and customer base of the stock market or the financial sector. This is also a board that prefers to phone it in. Last year, it met formally and in person on only five occasions; the rest of its meetings were held by telephone. That’s usually a giveaway of (a) a CEO who is seeking to minimize board involvement and doesn’t want a lot of questions asked, and (b) a board that has not grasped its duties and what it needs to do to perform them. By the way, Mr. Mozilo, in addition to being CEO, chairs Countrywide’s board.

Half a decade ago, at the height of the boardroom scandals that rocked confidence in American capitalism, I pointed out in a BusinessWeek interview that the compensation committee of Enron’s board, among others, met twice as often as its audit committee. Countrywide’s audit committee met on 14 occasions in 2006. Its compensation committee met a staggering 29 times in the same period, according to the company’s 2007 proxy statement. So much for the changed culture that directors regularly assert has overtaken the boardroom in the post-Enron era. It is clear where the board’s focus has been and it was in trying to figure out all kinds of new ways to shovel more money at Mr. Mozilo.

When I see a board attempting to justify its extravagance toward a CEO with phrases like “Our compensation programs are intended to enhance the interests of our stockholders by… aligning the interests of our executives with those of our stockholders,” as Countrywide’s 2007 proxy filing claims, I always get a little suspicious. It’s a laudable concept, but CEOs are already paid huge amounts to have their interests aligned with stockholders –or did I miss something in the millions in salary and perks CEOs now command? Are CEOs mere machines that don’t start until their meters click over a certain number? Are business titans who constantly demand to be further motivated before doing the best job they can the right people to lead in the first place? In what other field of endeavor do we pay out vast sums to the those we have hired and still have to pay them more before they will really perform? In the case of Countrywide’s CEO, Mr. Mozilo already owned more than one million common shares and held exercisable stock options for an additional 8 million at the time of the board’s statement. So the question is: What more incentive could he possibly need? Align management’s interests with shareholders? He’s the biggest individual shareholder of all.

From 2002 to 2006, Mr. Mozilo made some $387 million from salary, bonuses and stock option gains. Such figures reflect, with troubling frequency, the mindset of too many boards which appear to see their role as one of dispensing ever higher levels of pay to over-hyped CEOs in the form of elaborate compensation concoctions that are generally indefensible by compensation committees and often unintelligible even to sophisticated investors. Can any director credibly assert that Countrywide’s performance over the past four years could not have been achieved at half or two-thirds what it paid to Mr. Mozilo? If he had made, say, just $100 million during that time, would the company be facing any greater crisis than it is today? If he had been paid twice as much, would his interests have been so much better aligned with investors in avoiding the current disaster that he would have invoked superhuman skills to do so? It is against the gales of logic and reason that the self-serving arguments of profligate boards and New Gilded Age CEOs quickly become demolished and shown for the rubbish they are.

Countrywide’s 2007 proxy filing starts talking about compensation on page 20 and doesn’t end that discussion until page 66. One of the reasons the board probably doesn’t mind spending so much time on the topic is because directors are also benefiting from the company’s upper circle of beneficence. Directors receive a cash retainer of $70,000 plus meeting fees, plus added fees for chairing committees, plus a nice stipend of $220,000 in restricted stock. In 2006, no director received less than $358,000, several pocketed more than $400,000 and one pulled down $538,000. The company’s generosity even extends to former directors. Three past board members received more than a million dollars among them in 2006 for unspecified services which doubtless enhanced their loyalty to the company, whatever they were. In addition, company filings note that “one or more of the Company’s mortgage lending subsidiaries, in the ordinary course of business, made mortgage loans and/or made home equity lines of credit available to Directors and executive officers and their immediate families.” No wonder the board seems so generous with Mr. Mozilo and gets along very well with him.

The impact of excessive CEO pay is something I raised in 2002 with the House and Senate committees preparing the legislation which became known as the Sarbanes-Oxley Act. As I wrote in submissions on behalf of the Centre for Corporate & Public Governance at that time about the dangers of unchecked compensation:

The commanding heights of stock option packages today reflect this boardroom obsession with compensation. Such lofty sums tempt CEOs to artificially push up the price of the stock in ways that cannot be sustained, and to cash out before the inevitable fall.

The New York Times reports that Mr. Mozilo sold more than $138 million in stock between November of 2006 and August of 2007 —before the big meltdown in the market and in Countrywide’s stock in particular. Mr. Mozilo’s uncanny timing, as it was with Ken Lay of Enron, John Roth of Nortel, Jozef Straus of JDS Uniphase, Garth Drabinsky of defunct Livent, and so many others just before calamity strikes, is something that is deserving of study by world-class thinkers in physics. Instead of looking at the theory of relativity and the concept of time at infinity, Einstein could have done something really important and examined the phenomenon of what I call miraculously timed CEO stock sales. It’s out of this world, that’s for sure.

Did greed blind management to the dangers the company was courting by pushing out loans to those who could not possibly afford them but which nevertheless inflated short-term earnings. Were directors so disconnected from reality and so eager to please the CEO that the possibility of excess breeding disaster never occurred to them?

By the way, on matters related to credit quality, loan risk and so forth —those little things that rattled the market to the point of several 2 percent dips in the Dow and sent world bankers into a frenzy trying to provide liquidity in recent weeks— the board could only muster five meetings in 2006 for its credit committee. Perhaps a few more meetings on this subject and a few less on management compensation would have been a good idea.

One more fact should have raised some eyebrows: Countrywide employs enough siblings, children and brothers-in-law of senior executives with salaries of up to $400,000 a year, including a son and son-in-law of Mr. Mozilo, to make a tile company in New Jersey blush with embarrassment. You will recall that at Enron there were also a number of family members of top executives on the payroll. Countrywide claims that none of the related employee transactions required the approval of the board’s ethics committee. Why do we not find this surprising?

Countrywide shouts of a culture of excess and dubious governance in a post-Enron world that has already forgotten many of the lessons from previous episodes of boardroom failures and directorial complacency. The only thing that really astonishes about its recent reversal of fortune and reputational decline is that it did not come sooner.