That Tone At the Top: Fidelity, Lynch, and the SEC

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, it’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, couldn’t seem to lay down the scratch for getting tickets to events such as the Ryder Golf Classic and U2 and Santana concerts. Putting Lynch’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.”

There’s that tone at the top. While it is true that Mr. Lynch didn’t participate in the “dwarf tossing” that went on at the Fidelity traders’ 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. Fidelity’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 Fidelity’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 Fidelity’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,” ‘Gifts’ 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. There’s a shorter leap from U2 concert tickets to bachelor parties with dwarf tossing as entertainment than most of those at the top realize.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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1 Response to That Tone At the Top: Fidelity, Lynch, and the SEC

  1. Roger says:

    I asked Fidelity about this. Interesting to see what their response will be.

    Keep up the good work.

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