Leadership: Libor, Barclay's and Executive Accountability

I have been fascinated as I've read the reports on the investigation into interest rate manipulation by Barclay's and other banks, the resignations of that bank's Chairman and CEO and, particularly, the "spreading of blame" that's now occurring as everyone who knew better is figuring out a way to run for cover.

Here's my take on this from the leadership perspective:

For all that Mr. Diamond explained to the Parliamentary Committee that his people had been asking the US and UK regulators questions about what they were doing/could do - and being given no specific guidance regarding their actions - they knew better.

People inside an industry - or holding any particular job, for that matter - know and understand better than anyone else the nuances and consequences of their actions and decisions.  That's why they take those actions and make those decisions.

Because, one way or another, those actions and decisions serve them.


Should there be more and better regulation - particularly for those industries that are supposed to exist not only for profit but also to support the society in which they operate?  Sure.

Will regulation ever address all the agendas and actions of the individuals within any industry?  No.

Does it then fall upon the most senior executive to make clear - to the point of termination - that any action that could conceivably mar the reputation of the organization is unacceptable and will not be tolerated?  Yes.

And that's where Mr. Diamond and his colleagues continue to go wrong.  They're happy to say, in retrospect, that what was done "sickened" them - but that doesn't do anyone any good.  In fact, that, too, is self-serving.

Ultimately, this becomes about you - not them.  If there are reputation-risking actions and decisions going on in your organization, you either know who or where those are taking place.  That makes it your responsibility to stop those actions - now.

This is about morals and ethics and integrity.  Not business.

It's time for leaders to lead.

Goldman, Facebook and the SEC - Too Big to Care

The one thing you always know about Goldman Sachs is that they know exactly what they're doing.  Every step of the way.

They can say "unintended consequences" when they talk about their highly sophisticated ways of slicing and dicing bad debt and selling it off as credit default swaps.  They can even say "but it's our money" when they get 100 cents on the dollar from AIG when the US Government has just bailed out both AIG and Goldman.

They'll always have a reason - careful and considered - for what they do.  Or they just won't answer at all.  Because they don't have to.  Nothing substantive happens to them if they don't.

Even when they have to pay the US Government $550m in fines for their actions.  It's an easy out and a drop in their particular financial bucket.

And that's the real lesson of Goldman in this economic circus.  It's not just that they were considered "too big to fail."  It's that they believe they're too big to care.

That has to be at the foundation of their decision to create a special fund for their corporate and wealthy clients to buy another $1.5bn in valued at $50bn, because of Goldman's investment of $375m.

Why?  Because with the new SEC rules, there are a limited number of individual investors who are allowed to hold shares in a privately held company before it is required to go public.  By creating this new version of a special vehicle (one of Goldman's clear specialties), they end-run the rule and the SEC.  After all, if they are the ones managing the deal, it's only one investor.  Right?  Just Goldman.  It doesn't matter how many individuals are part of the fund.

Yeah, right.  And that doesn't even touch the way they ignored the Volcker Rule limiting their use of proprietary investments they can make with their own money.

Not long ago I wrote a paper for the Chartered Institute of Management Accountants on corporate reputations - why they're important and what to do about them.  (You can get a free pdf download of the report and see my launch event here.)  In it was a case study on Goldman Sachs - but, unlike the other case studies, the editors at CIMA were uncomfortable with the introductory quotation I wanted to include.  They were concerned that it would be too inflammatory for the readers.

They were the editors so, even though I protested, the quote was out.  Well, folks, here it is for your reading pleasure:
“Boy, that Timberwolf was one shitty deal” How much of that “shitty deal” did you sell to your clients after June 22, 2007?...You didn’t tell them that you thought it was a “shitty deal.”'
That comment came from Senator Carl Levin on the 27th of April 2010 during the Senate Hearings regarding Goldman Sachs' role in the economic crisis.  The "shitty deal" he's talking about - and where that reference comes from - was an internal Goldman memo.  The person he was questioning (who, at best, avoided and, at worst, obfuscated in his replies) was Daniel Sparks, Goldman's former Mortgage Department head.

So, the deal that was quoted was done in 2007.  The crash came in 2008.  The hearings were in 2010.  It's January 2011.  Nothing has changed.  Evidently because Goldman can't see any reason they have to.

And that's the saddest part of this whole thing.  Because Goldman, historically, was a truly excellent organization.  It had ethics and, because it was a partnership, there was a clear impact on the partners when the organization did something "wrong."

Since changing their business model and having gone public, the whole concept of ethics, integrity or (for pure fantasy sake) corporate social responsibility were thrown out the window.

The arguments regarding whether and to what extent regulators should become involved will continue in every country - because every business and industry wants to protect itself from being "over-regulated."

But when an industry - or organization - continues to show its contempt for the regulators, the government and the larger population that are supposed to be protected by those regulations, then it's time to say, go ahead.  You want to do shitty deals?  You want to spit in the face of the regulations - softened though they were - while you keep building your fancy vehicles to hide and cheat and steal?

You just go ahead and do that little thing.  Because we're going to come at you with everything we've got - limited as it might be.  Moreover, when the bottom falls out - which it will - we won't be there to catch you.  Not this time.  Not ever again.

Let some other financial institution that hasn't been playing fast and loose with the system benefit.

Goldman isn't inviolate.  It doesn't live in a bubble - unless our politicians and regulators allow it to live there.

Moreover, Goldman isn't the only one of its kind, nor is its particular brand of toxicity limited to the US. Every country's got them.

As business leaders, you choose with whom you do business and how.  You determine - by voting with your feet and your funds - which organizations have to live up to the same standards as you...whether because you hold yourself to them or because you have more respect for the system than this particular financial institution.

Whether it's a Goldman or any other entity, be careful who you do business with.  After all, you can just as easily find yourself on the "shitty" side of the deal as anyone else.  Even if you're convinced they would never do that to you.

Clearly, they will.

BP and Goldman: You Manage What You Measure

It is a truism that "you manage what you measure."

The reasons why are simple:

  1. The measures are deemed important enough to warrant the effort to manage directly - which means that the right information at the right time is required.
  2. What is being managed is deemed to be tied directly to the success - or failure - of the department/division/enterprise to warrant the effort.
  3. Someone's - or more than one person's - compensation and/or future existence within the enterprise are dependent upon how that particular area is performing - based on the measures.
In those cases, not only are those measures managed, but they are known by enough people to be usable for everything from strategic and operational decision making to succession planning or terminations.  

There is, however, an obverse to this as well.  Sometimes, you measure and you manage - but you don't tell.  At least not many.

Sometimes, that's necessary.  I'm a great believer in information management.  In fact, I think that not enough thought - and forethought - is put into either measurement decisions or the ways that the information from those measures are being disseminated (or not) in the enterprise.

Information just if it has a life of its own.  

(Just so you know, it doesn't.  Whenever and wherever information moves - or doesn't - there is a purpose on the part of the person making the distribution decision.  And that purpose is not always in line with what you want or are working to achieve.)

But when information - particularly measures - are seen as being purposefully withheld, more and worse questions arise.  In those cases, you're asking for trouble.  You may well deserve it.

You've entered into the world of "transparency" - and a murky, distrusted world it is.

We're watching this happen now - and you've got your choices of which organizations deserve to join the "Corporate Perp Walk Hall of Fame."  (This is the next iteration of the "Executive Perp Walks" so popular a few years ago.)

Right now, we have two major corporations tied for first place.

To start, there's Goldman Sachs not quite being upfront with their customers about what they know and when they know it - not least whether the firm is betting against what they're selling with as good as insider information.

That decision has led them to being sued by the Securities and Exchange Commission for fraud - which has led to a 26% drop in their share value (to be fair, that includes a lot of other variables causing a market correction) and the possibility - if they can pull it off - of getting away with only a $1billion settlement.  (That's Goldman chump change.  In fact, they'd undoubtedly see it as a good investment.)

(On a side note, Warren Buffett has it completely wrong when he defends Goldman.  That's self-serving - he has a really big investment making lots of money from Goldman - and disingenuous.  This is an ethical issue and he well knows it.)

And, in a tie position, you've got BP - who are making a worse mess of their mess than they already created in the Gulf.

Because BP's executives are so concerned - now - with what will happen later when the litigation really hits, that their unaccepted, disingenuous replies range from:
  • "It's their fault" (not a good strategy in a Congressional hearing with the counterparts sitting next to you doing the same thing) to 
  • "It's only a moderate spill" (which is patently untrue - and sounds even worse to an angry American audience when it is said by the British accented CEO to a British television network) to 
  • "It's impossible to measure the amount of oil being spilled" (which has now been completely debunked by a quartet of scientists who figured out a way all on their own).
It doesn't matter what industry you're in - or, for that matter, what country or sector.  The problem that comes from all of this activity is that there is less and less trust extended to you by your customers.  In their eyes, they have no reason to trust you.  You're probably just like all the rest.

So, before you make your next set of decisions or as you start reviewing the most recent data being handed to you, stop and think for a moment.  Then ask yourself:
  • What are we measuring?
  • Are those measurements giving us the best, most useful information?
  • How do we know?  How are those data tied to strategic and operational goals?
  • How are these data being disseminated - and to whom?
  • Who else should get them?
And the seminal question:  What are we hiding?

Because you can count on it.  If you're hiding anything - then something is being hidden from you.

And you really don't want that keeping you up at night.

Costco, Sam's Club, Trust and Corporate Policy

Recently, I've been thinking a lot about trust.

It's one of those personal and corporate commodities that is so easy to establish and maintain but even easier to lose.  And when it's lost, it's incredibly hard to regain.  Not impossible - because trust, for all its seemingly emotional base, is actually behavioral - but difficult and time consuming for everyone involved.

(I write in detail how to establish and regain trust through the behavioral Trust Model in my book, Executive Thinking.)

One of the best examples of companies that operate on trust both within and in their customer dealings is Costco - one of my favorite stores no matter where or in which country they might be located.

Costco redefined the concept of a warehouse store.  From the early days, other warehouse stores made you feel as if you were shopping in a slightly dingy, badly lit, too large, not well ventilated building and could only purchase low-end, left-over products.  In contrast and with incredible vision, Costco's President and CEO, James D. Sinegal, understood that there were no limits to what could be offered at a good price in more comfortable and well-lit surroundings.

From corn flakes to crystal, Costco has it - with high value and always at an excellent price.

By the way, a few things about Sinegal.  First, he is one of the few CEO's that Warren Buffett cites as best of breed.  Second, one of Sinegal's biggest, ongoing arguments with the Compensation Committee of his Board is that he doesn't want a really high salary - because he doesn't believe in them.  (He does believe, however, in giving his employees excellent benefits.)  And, third, if you want to see what executive humility looks like, take a look at the Executive Officers page on the corporate website.  It's alphabetical - which puts Sinegal down near the end.

Most important, and why Costco is of note in this regard, is because of its return policy.  Basically, you buy it, you don't like it, you return it, you get your money back.  No questions, no problem - as long as it's within 30 days of purchase.  And if you don't have your receipt, that's okay, because they can find your purchase history on their computer.  From a half-eaten watermelon (this is true) to a wide-screen television, you don't like it, you've got your money back.

It's all part of the customer experience.  One in which the customer can trust the provider.

Contrast that with a recent advertising circular from Costco's biggest competitor, Sam's Club, a division of Walmart, and you'll see why trust is such an important component.

Buried on an inner page in really tiny writing is a series of paragraphs that delineate "Sam's Club Advertised Merchandise Policy."  After a bunch of legalese they get to the good part - the part that allowed the corporate lawyers to really let loose.  It says:

"The opinions in this publication are those of the writers themselves and are not statements, positions or endorsements by Sam's Club or its officers."

Translated, what that means is that if you don't like what you've bought (online or in store) because you don't feel that you've been given what you thought you were buying, tough.  The writers, whether they belong to Sam's Club or the product manufacturers, said what they said and you chose to believe them.  Even better, if you're unhappy enough to want to sue (a particularly American trait), you're not going to get near the corporate officers.  They're immune.

It's not that this is necessarily a bad corporate policy.  It's simply one that demonstrates to customers that they shouldn't necessarily trust the provider, Sam's Club, because the company as good as doesn't trust its suppliers...or at least the wordsmiths in marketing who provide the descriptions.

Customers shouldn't have to think about small print when it comes to what you provide - no matter where on the supply chain you may lie.  From raw materials to final product, you want to ensure that anyone who does business with you isn't having to wonder and worry about the small print even as they do the deal.

It used to be that a handshake was as good as a contract.  That "your word is your bond" was true.  Sure there were cheats, but integrity was personal and important - and it worked on both sides of the equation.

In this economic environment, it's more important than ever that that type of integrity be demonstrated in corporate policy - both for your employees and your customers.

I don't know if Sam's Club has as trust-building a return policy as Costco.  Given the small print, however, since they don't trust the integrity of their suppliers they give their customers every reason to question the company's integrity as well.

More than anything, what their policy does is give the customers good reason to walk out their door and directly into Costco's portals.  That is neither good policy nor, I'm sure, is it their intention.