Those at the top, those who do consulting work for those at the top, audit firms, directors, and a holy host of others all chant, “Well, itâ€™s all about the tone at the top.” “It” (meaning culture, ethics, and governance) is indeed a function of the tone at the top. The problem is that those at the top fail to realize that what they do is marked well by employees, especially when those at the top do the kinds of things that would get those on the front line fired. When those at the top are harping about ethics and doing the right thing, they had best be doing the right thing themselves or the mantra does ring hollow.
Peter Lynch, he of Fidelity and portfolio management fame, couldnâ€™t seem to lay down the scratch for getting tickets to events such as the Ryder Golf Classic and U2 and Santana concerts. Putting Lynchâ€™s eclectic tastes aside, a man who was earning between $3 and $10 million per year and who had his own foundation could afford to ante up $15,948 for tickets.
Mr. Lynch agreed to repay the value of the tickets plus interest of $4,183, and also expressed regret, “In asking the Fidelity equity trading desk for occasional help locating tickets, I never intended to do anything inappropriate and I regret having made those requests.”
Thereâ€™s that tone at the top. While it is true that Mr. Lynch didnâ€™t participate in the “dwarf tossing” that went on at the Fidelity tradersâ€™ bachelor party, courtesy of brokers who wanted Fidelity trade, his statement does no favors for tone at the top.
Sixty-one tickets valued at $16,000 are not small potatoes to front-line employees. “Lynch gets tickets” is all the message they need to have in order to sally forth with their demands of brokers and feel good. After all, those at the top were doing the same.
Whether Lynch intended to do anything inappropriate, as he noted in his statement, is not the issue. The SEC has rules against pressuring brokers for “stuff” and “freebies” for a reason. Fidelityâ€™s loyalty is to its mutual fund clients. Tossing brokers business because they have an in to Santana may not be crackerjack analysis when it comes to the interests of Fidelityâ€™s investors. And it is tough to see how access to the Ryder Golf Classic makes that broker a cut above others who might have better service, commissions, and all those other dull factors that once went into awarding business.
Through his use of the Fidelity traders for tickets, Lynch placed his imprimatur on a system of getting and giving “stuff” for Fidelityâ€™s trades. In addition to Mr. Lynch, other Fidelity traders and officers racked up $1.6 million in goodies from brokers who were wooing Fidelity trades. One Fidelity trader commented, “Word is out that the order flow is for sale.”
The various reports Fidelity had prepared on the trader goodies and stuff from brokers concluded that the conduct resulted in “adverse publicity, loss of credibility with principal regulators, and a loss of Fund shareholders. Stuff is never without consequences. And the SEC noted, “The tone is set at the top. If higher-ups request tickets from a trading desk, it may send a message that such misconduct is tolerated and could contribute to the breakdown of compliance on the desk.” (Kara Scannell, Susanne Craig, and Jennifer Levitz,” â€˜Giftsâ€™ Case Nabs a Star,” Wall Street Journal, March 6, 2008, p. C1.)
Ah, that tone at the top thing. The top just needs to realize that it is indeed the top and that what they does set the tone. Thereâ€™s a shorter leap from U2 concert tickets to bachelor parties with dwarf tossing as entertainment than most of those at the top realize.