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.

Decisions about CEO compensation involve more than the marketplace working its magic or the immutable hand of economics writing its way. They affect the continued legitimacy of capitalism and its need for public respect if it is to function.

The huge bonus paid to Morgan Stanley CEO John Mack is not entirely surprising. In recent years, boards have been acting like giddy school children in awarding bonuses to CEOs. They approach the task, predictably as Adam Smith observed, with a sense of abandon that comes only when dispensing other people’s money. Now, if they were negotiating with the person who cuts their lawns or cleans their pools, there might be some tough bargaining.

The idea that Mr. Mack needed the $40 million bonus to be fully motivated, or that he would have been far less productive if he had received, say, a mere $20 million, is an notion that exists only in the minds of compliant directors or economists who have spent too much time in a windowless classroom. What is surprising is the reaction to the announcement. Take a look at it. Some of the comments on both sides of the issue are a little excessive themselves. But the overall impression is of a sense of rage that is beginning to boil over CEO pay. It is, as I have long suggested, symbolic of a greater illness in corporate America. In the years to come, as the rift in wealth become even more pronounced, people will see excessive CEO compensation as the emblem for the wider forces of economic polarization and social division. I fear a firestorm of resentment looming in the not too distant future that will re-shape many institutions in society if the problem is not addressed.

As the New York Times notes about reaction to record bonuses at Goldman Sachs:

In London, Goldman’s office cleaners threatened to strike. “Whilst bankers at Goldman Sachs will be splashing out on second homes, cars and polo ponies with their multimillion-pound bonuses, cleaners at Goldman Sachs are being squeezed by staff cutbacks,” Tony Woodley, general secretary of the Transport & General Workers’ Union, which represents the cleaners, told BBC News.

Driss Ben-Brahim, a top Goldman trader who according to press reports collected $98 million, was stalked by paparazzi outside his home in London. One of Goldman’s holiday parties was mocked for its lavishness when it was reported that some of its managing directors anted up $10,000 each to pay for it.

These are not earth shattering events to be certain. But some of the world’s seismic upheavals have begun with smaller eruptions. And there is no doubt that polls increasingly reflect a sense of public revulsion on the subject of CEO pay.

Decisions about CEO compensation involve more than the stockholders of any given company. It is not just about the objective marketplace working its magic or the immutable hand of economics writing its way. It is about the continued legitimacy of capitalism itself and its need for public consent and respect if it is to function.

As to Morgan Stanley’s role in all of this, once again we see directors who are supposed to be exercising independent judgment receiving stock options just like management. Two of Morgan Stanley’s outside directors, Laura D. Tyson and C. Robert Kidder, held more than 135,000 options between them as of the most recent 2006 proxy filing. Ms. Tyson chairs the governance and nomination committees. Mr. Kidder, in addition to holding the position of lead director, sits on the audit and compensations committees.

We set out our views on why directors ought not to be riding on the same options train as management recently here. There is nothing wrong with receiving shares in compensation for director duties, of course. But the idea of having a special incentive to run up share value in the short-term may well compromise and distort longer-term price stability. A policy that awards stock options to directors clearly disposes a board to a generous mindset regarding options to management. And once again, we see in Morgan Stanley a board that is more focused on compensation matters, accordingly to its most recent proxy circular, than audit-related issues. The compensation committee met 10 times. The audit committee recorded 8 meetings. Since rejoining the company in June of 2005, Mr. Mack has received more than $80 million in stock, bonuses and salary, including a gift of $26 million in stock his first day on the job. An eight figure gesture like that, for showing up and not performing a single task, demonstrates that the link between CEO pay and real results enjoys no consistency of thought in the minds of Morgan Stanley directors.

The company is also one of the holdouts in insisting that the CEO who reports to the board also heads the board to whom he reports. If boards have that kind of view about balancing issues related to power and accountability in 2006, its is unlikely their ideas about compensation have properly evolved beyond acting as a virtual ATM to the CEO of the day. You could make the case, looking at compensation figures for the previous CEO, that the board has been acting like this for some time. You could also make the case that the millions in fines, penalties and settlements paid out by the company over the past number of years suggests an inadequate attention to issues related to accountability and ethics.

CEOs enjoy jobs that are among the most prestigious and legacy rewarding of anything in the world. The notion that paying someone a few million is to be scoffed at and could not properly induce any results, that a CEO must be paid $50 million or $500 million to really get the job done, is one of the greatest hoaxes ever foisted upon the stakeholders of the modern capitalism. It is one for which we will all be paying over many years to come.

[UPDATE: Late today, Goldman Sachs’ board announced that it paid CEO Lloyd C. Blankfein a $53.4 million bonus in 2006, a record for Wall Street which, when added to his compensation for 2005, comes close to $100 million for the past two years].