That “Tone At the Top” Thing: Fuld, AIG and St. Regis

As a firm believer in shareholder activism’s ability to bring about governance reforms, I am loathe to admit that government intervention may be necessary in certain circumstances.  But, when I am right, I say so.  When I am wrong, I also say so.  AIG spent $443,000, including $23,000 for spa treatments, at a California St. Regis resort for a retreat for top-performers that was held within one week of the government’s rescue loan of $85 billion to the mismanaged firm.  This conduct is akin to that of the friend who orders steak and lobster just after borrowing rent money from you.   As a firm believer in incentive programs, I understand the need to reward those agents who sold, sold, sold.  But, at a time when economic angst is at a peak, surpassed only by the level of anger in the picking-up-the-tab taxpayers, taking a pass on the annual spa extravaganza for the agents might be a good idea.  The “tone at the top” is a trite phrase spouted by those at the top who don’t seem to understand that they are the tone.  Tone means discretion, restraint, and good judgment.  Tone also means paying attention to details.  Former CEO Robert Willumstad (removed when the government bailed out AIG) offered his explanation for the profligates’ retreat, “I was not aware of it, and if I had been, I would not have let it happen.”  Actual knowledge is not required for setting a tone of “Let’s take everything down a notch.”  Or there is always a simple edict issued in good judgment (a marvelous tone):  “Folks, given the bailout, no more parties and retreats!”  But, the most troubling response came from AIG’s spokesman, Joe Norton, “It is a common practice in the industry and is viewed as an expected part of the higher-performing agents’ compensation.” Everybody does it!  Not exactly an aspirational tone at the top. 

Speaking of a tone at the top that is isolated and insensitive, enter Richard S. Fuld, former CEO of the now bankrupt Lehman Brothers.  Mr. Fuld (Fold or Food) has stated that because his net worth has shrunk from $1 billion to $100 million that he has been forced to sell some of his “renowned” art collection.   But, it does get better.  In his testimony before a somewhat hostile Congressional panel, Mr. Fuld stated, “I, like a number of other people, thought that the mortgage crisis was contained to residential mortgages, and I was wrong.”  A man who has been in the financial services industry for 42 years never connected the dots between and among mortgages, Fannie, CDOs, and risk.  Tough for those in the trenches to believe or follow such a leader who fiddles as their commercial paper burns.  Then there was the $20 million in exit packages paid to executives about a week before Lehman landed in Chapter 11.  Poor judgment, bad tone.

A message for all CEOs and others at the top:  Discretion, judgment, restraint, and wisdom.  Use them now and often.  This is a plea from a free market advocate and a firm believer in shareholder activism.  Fail to heed my call to action and you may find governance reforms that will make SOX look like a cheap adn rote checklist.  And it wouldn’t hurt for you and your art collections to take the bus or subway once in awhile.  Schlubbing is conducive to better tones at the top. 

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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