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.

Something has gone fantastically awry in the risk management and oversight of some of the world’s most renowned investment bankers and financial institutions. The shortcomings in their controls and governance systems that permitted multi-billion dollar losses at Citigroup, Merrill Lynch, Bear Stearns, UBS and Swiss Re, and the overall failure of top management and boards to comprehend the risks of the subprime related investment vehicles they were packaging and selling, has been a recurring theme at Finlay ON Governance in recent months. We were taken aback, as we noted last week, when new Merrill Lynch CEO John Thain told the Wall Street Journal “Merrill had a risk committee. It just didn’t function.”

But nothing has been as breathtaking as the loss of more than $7 billion by Société Générale, apparently the result of a rogue trader acting on his own. That a lone employee could so imperil the financial health of a major financial institution is almost beyond comprehension. If that is the case, it is such an indictment of failure on the part of the bank’s controls and oversight mechanisms in this post-9/11 age of global terrorism you can be sure that more than a trader’s head will roll at SG.  You can also bet that there will be a number of surprises and shocking turns before this puzzle is solved.  There always is when big money suddenly sprouts wings.

Several years ago, shortly after news broke of the Barings trading fraud, I was asked to make some observations about what kind of corporate culture could have permitted such a devastating loss at that time. I wrote in an Op-Ed in the Financial Post at the time:

As the Barings saga unfolds, it will doubtless reveal the existence of warning signs that should have been heeded by management and the board, weaknesses in the bank’s accountability structure that no prudent firm should tolerate and excesses in behavior of the offending trader that should have sent up red flags everywhere.

An investigation by the Bank of England soon confirmed my suspicions. Management resigned and the bank, which had survived revolutions and wars for more than two centuries, could not carry on. It was later broken up and its remnants sold. And Barings disappeared into infamy.

I predicated at the time that there would be more Barings. In 1996, a rogue copper trader at Sumitomo Corporation lost more than $2.6 billion in fraudulent transactions. In 2002, a currency trader at the Baltimore affiliate of Allied Irish Bank lost $691 million through unauthorized trades.

Given history’s evident insistence upon repeating the mistakes from unlearned lessons of the past (lessons which the subprime meltdown and the SG debacle painfully demonstrate are yet to be understood by boards and regulators), I thought it might be timely to reprise my article, originally published in the Financial Post in March 1995. A note to readers: some of the companies referred to in my piece may not be familiar, as several did not recover from the loss of confidence occasioned by their misdeeds and vanished like creaking ships into the fog of ethical misadventure.

Until boards and management become serious about ethics there will be more Barings
By J. Richard Finlay

The Financial Post
11 March 1995

What several European revolutions, two world wars and numerous depressions could not do to London’s Barings Bank in more than 200 years, one 28-year-old employee accomplished with a few computer key strokes. And the bank collapsed.

Such is the high cost of ethical folly in the ’90s. It is a lesson that has been demonstrated before by companies such as Drexel Burnham Lambert Inc., which could not survive the fallout from its conviction for securities fraud and the $600-million fine levied against it in the 1980s. Prudential Securities is still reeling from the estimated $1.4 billion in penalties and restitution costs arising from wrongdoings in its limited partnerships. Kidder, Peabody & Co. recently disappeared after a scandal involving phantom profits and lax accountability. And then there are the cases of Standard Trustco and the Northland Bank that were seized by regulators, leaving a trail of questions about ethics and accountability practices in their wake. Ethical concerns also have been raised in connection with the collapse of Confederation Life last summer.

What these examples demonstrate is that ethics, far from being the esoteric ”soft” issue many in business think it to be, is about as bottom-line focused as you can get. It is a key to survival in a financial world that depends more and more upon confidence and accountability as the twin pillars of success.

There is, however, no great surprise in the fact that these kinds of disasters continue to surface with predictable regularity. The real surprise is that there aren’t more of them. The structure of many companies almost invites such catastrophe. Most organizations have very weak codes of ethics that are poorly supervised and almost never audited. If the same approach were taken to financial performance, investors would desert the company in droves.

Short-term thinking, often prompted by the lure of quick profit, is another cause of ethical folly. In the case of Barings, management was alerted months ago to the inadequacies of its oversight systems. But management chose to ignore that advice, presumably because everyone seemed to benefit from the system as it was. ”Why fix something when it’s not broken?” is a bromide that many advocates of strengthened corporate ethics systems hear time and again. Ethics also gets short shrift because it is easy to ignore. Slap the pre-packaged code of ethics into the employee manual and you create the impression of an ethically sensitive organization. Drexel Burnham Lambert, Prudential Securities and Kidder, Peabody each had a code of ethics. But without a strategy for embedding ethics into the culture of the organization, without a commitment to making it an overriding component in every decision of the organization, a code of ethics is little more than window dressing.

Ethical performance doesn’t just happen. Like product quality, customer satisfaction, competitiveness and any other important ingredient of success, the ethical performance of a company needs to be managed. It requires clear goals, the understanding and involvement of employees, continuous training, regular evaluation, periodic auditing and, most of all, the commitment of top management.

It is this latter category that is so often the missing – and fatal – component in the ethical equation of organizations. Unless senior management is fully dedicated to ensuring the highest standards of ethical performance, and incorporates compliance and supervision practices into the structure of the organization, ethics will never move from theory to reality. In this connection, the role of the board of directors is paramount.

The board is ultimately responsible for preserving the integrity and the continuation of the organization. But too few boards have ethics committees or make regular examinations of the ethics practices of their organizations. Does the company have an ethics training program and hold ethics seminars? Should an ethics ombudsman or external ethics counsellor be hired? Is there an adequate whistle-blower policy? Can outside members of the board be reached independent of top management?

Many scandals have developed because initial problems were covered up by management. As author Peter Drucker has noted, the board was always the last group to hear of trouble in the great business catastrophes of the 20th century. This latest disaster shows that many boards are still in the dark over such issues.

As the Barings saga unfolds, it will doubtless reveal the existence of warning signs that should have been heeded by management and the board, weaknesses in the bank’s accountability structure that no prudent firm should tolerate and excesses in behavior of the offending trader that should have sent up red flags everywhere. And people will say, as they always do in such cases, how could that have happened? The answer is that until boards and top management become serious about business ethics, and realize that it is survival ethics, such catastrophes cannot but continue to occur.

(Copyright 1995, 2008 J. Richard Finlay. All Rights Reserved)