Angelo Mozilo, Everybody Did It, and the Wall Street Journal’s Holman Jenkins

Angelo Mozilo, the former CEO of Countrywide Mortgage, whose perpetual tan and leathery look bring the phrase, “Can melanoma be far behind?” enjoyed a defense from the Wall Street Journal’s Holman Jenkins.  Mr. Jenkins never met a slotting fee, an options back-dater, or an insider trading cad he can’t defend. Mr. Jenkins has a good mind that offers brilliant legal and financial analysis of the troubling issues and figures in business. His articles on executives facing overzealous prosecutors are must-reads.  But, Mr. Holman has a blind spot on ethical questions – he never goes there.

In his February 23, 2011 piece on Mozilo, Mr. Jenkins made the point that the former Countrywide CEO simply followed a business model: Giving mortgages to anyone who was able to get a mortgage from anyone else in the U.S.  Mozilo’s business model, Mr. Jenkins assures, simply blew up in his face.  The classic, “Who knew?”

There are three not-so- small problems with this new “but it was just a flawed business model” defense.  Mr. Mozilo was unloading Countrywide stock during the last year before his company’s collapse – a pattern that seems to indicate a tad bit of doubt about his model and, as a result, his company’s future.  As a CEO, Mr. Mozilo was compensated handsomely for his leadership. Following a business model without an occasional revisit and review of economic conditions, patterns, and, oh, say a Wall Street Journal editorial here and there screaming warnings about bubbles is not the stuff of leadership.  Finally, the “Everybody else was doing it” business model is neither unique nor tough to duplicate and is the classic ethical rationalization of a child, an infant terrible.  Ward Cleaver, the wise father in the 1950’s classic, “Leave it to Beaver,” once chided his sons for getting bizarre haircuts like their friends with, “If your friends all jumped off a building, would you do it to?”  Theodore responded, “How high is the building?” CEOs are not paid to do what everyone else is doing, strategically or ethically.  CEOs are paid to know the building, the risk of jumping, and even question why his company is pursuing such a facile and easily duplicated business model.

Mr. Mozilo’s shallow leadership left all of us with a fairly hefty tab.  Mr. Jenkins is correct.  There is no criminal case here.  What Mr. Mozilo did was worse than a criminal act.  He and other CEOs like him were fooling around with capitalism.  Criminal cases are tough to weave out of the sophisticated highfalutin finance that dominated the subprime model, at all levels of the financial markets. But conduct such as Mozilo’s chips away at our trust in companies and markets.  Capitalism doesn’t work without trust – we don’t invest because we know there are criminal sanctions when companies fail or deceive us.  We invest because we want to believe that most companies are following a business model in good faith, coupled with expertise, insight, and diligence.  That type of trust cannot survive in an amoral technician’s world. Mr. Jenkins favors protection of the amoral technician: Executives who trot as close to the legal line as possible, without crossing it, are free from any judgment regardless of the harm they cause.  That’s chilling thought for markets and ethics.  Mr. Mozilo just did what everyone else did.  But as Ward Cleaver would say, “That does not make it right.”