Posted tagged ‘Richard Fuld’

The Ethics of CEO Leadership: The Message of John Wooden (1910-2010)

June 5, 2010

Newspapers across the country today are honoring the life of legendary UCLA basketball coach John Wooden who died yesterday. The outpouring of praise might seem unusual given his long life (99) years and the many tributes already paid while he was alive to experience them. He also retired 35 years ago as a college coach, rather than a world leader, so what creates his staying power in the hearts of so many who never met him, let alone the men he coached, only some of whom went on to become sports legends?

In addition to all the other possible reasons, I think it is because 60 years ago he created a philosophy that he called his “Pyramid of Success” which speaks to athletes as well as CEOs about how to dominate in one’s field and achieve maximum results. It a formula for leadership that is aligned with current trends called authentic leadership.”

Wooden’s approach was grounded in a player’s developing himself as a person. The 15 building blocks create a framework that unites ethics and emotional intelligence with mental and physical conditioning, skill, and competitive greatness.

Wooden, both a student and teacher of wisdom, said of character and reputation: “Be more concerned with your character than your reputation, because your character is what you really are; your reputation is merely what others think you are.”

Think about the parade we’ve had the last few months of CEOs from companies with huge reputation issues called before Congressional committees to explain what went wrong, why harm was caused, how public trust was lost. Consider the hearings on huge oil profits and high oil prices, health insurers, Akio Toyoda testifying on unintended acceleration, (Toyota), Richard Fuld on the collapse of Lehman, Lloyd Blankfein on Goldman Sachs’ priority on customers, Don Blankenship on mine safety, (Massey Energy mine disaster) and Lamar McKay and others on BP’s oil spill not being the company’s fault (BP America) to name a few. Still to be heard from is CEO William Weldon asked to explain Johnson & Johnson’s series of recalls and how the company has handled them.

What is there about Wooden’s Pyramid of Success that offers CEOs outstanding executive coaching?  The pyramid takes the hallmark driven behavior of achievers and blends it with values that create a context for actions. Wooden won 10 national titles. He inspired loyalty and consistent and outstanding performance. He tapped into what his players could be inspired to do to achieve their potential.

“Ability,” he said, “may get you to the top, but it takes character to keep you there.”

The ethical leadership lessons for the court fit very well in the board room.

Gael O’Brien, June 5, 20010

The Week in Ethics

Lehman Brothers’ Perfect Storm: Where Ethical Lapses Met Bad Judgment

March 18, 2010

Update: September 9, 2013: Five years ago this month Lehman Brothers collapsed. The New York Times reports today about the SEC’s several- year investigation, internal disputes over whether evidence against Lehman was strong enough to bring charges, and why they haven’t.

Update August 26, 2011: Former CEO Richard Fuld and 12 other Lehman executives and directors, accused in investor lawsuits of lying about Lehman’s financial condition leading up to the bankruptcy, filed in Federal Bankruptcy Court yesterday requesting a judge release insurance proceeds to pay for settlements. The former executives have agreed to pay $90 million to settle a shareholder suit and $8.25 million in another suit. They are neither admitting or denying wrongdoing.  

Update: April  20, 2010: Today former Lehman CEO Richard Fuld testified before the U.S. House Financial Services Committee insisting he had no recollection whatsoever of hearing about Repo 105 transactions while at Lehman. Fuld testified Bankruptcy Court Examiner Anton Valukas distorted relevant facts about Repo 105, and that he signed off on SEC filings because his chief legal officer and others raised no issues. Rep. Jackie Speier (D- CA)  disagreed that the Examiner’s report vindicated Fuld saying that billions of Lehman shares had traded on misrepresentation.

Did Wall Street’s financial meltdown really have nothing to do with ethics or governance? Was it instead about bad business decisions and poor government oversight? That is what some business leaders, in a series of 30 interviews I recently conducted, have suggested.

I disagree. And I think the Bankruptcy Court Examiner’s report on the collapse of Lehman Brothers, released last week, backs me up.

It offers a prime example of how ethics and governance are part of the lens that should be focused on in what went wrong in the meltdown; indeed, ethics and governance are what we need to have more, not less, of as we re-establish the soundness of our economy.

The report by Examiner Anton R. Valukas identifies what he says are Lehman Brothers’ non-culpable errors of bad judgment and areas where there is “sufficient credible evidence to support a finding by a trier of fact” (for example, a judge or jury). Not exactly a ringing endorsement of the transparency of Lehman’s business practices, eh?

The report finds that Lehman painted a misleading picture of its financial condition using a Repo 105 accounting strategy that auditors Ernst & Young knew about but didn’t question.

What’s in a name?

The report also indicates that Lehman did “actionable” balance sheet manipulation to keep Rating Agency approval. Lehman and Ernst & Young may yet face criminal charges as a result of these and other findings.

The report offers rich material for crucial conversations including:

  • Governance – Beyond findings of law, what should directors be counted on to ask and pursue?
  • Corporate culture – What prevented employees and “whistle blowers” who called out problems and concerns from being heard and heeded?
  • Managing risk – What are implications for culture and business practice when risk management framework is superseded by executives’ “practical experience” – and how are errors in judgment corrected or concealed?
  • Transparency – What are, or should be, the consequences of manufacturing confidence at any cost?
  • Ethical leadership – What kind of example do you set as the “Gorilla of Wall Street”?
  • Accountability – To whom and for what?

Questions also remain about the ethics and legality of JP Morgan Chase’s and Citigroup’s actions as unsecured creditors, as well as Ernst & Young’s behavior. How are accounting tricks – that may be technically legal but create false information about financial health – aligned with maintaining the highest professional standards? A standard well below that, it seems, was accepted business practice here.

Through the floor

Now that the business model of rewarding excessive risk and leveraging that brought Lehman and others down has been eviscerated, what is the next evolution for capitalism and free markets. And what will the role of ethics be, in helping companies be profitable and successful? Will the term “business ethics” seem less an oxymoron?

Lehman lost 95 percent of its stock price in less than eight months which Richard Fuld, former CEO,

blamed on external factors (credit agencies, short sellers, rumor mongers among others) when he testifiedbefore Congress.

The Examiner’s report didn’t find that the standard of negligence was met in senior management’s disregarding risk appetite limits, balance sheet limits, stress testing, quantitative risk limits and other metrics, as well as the advice of its risk managers. The report also said that Lehman’s senior management didn’t breach their fiduciary duty by not telling the board of directors the level of risk they’d assumed and the board didn’t breach its fiduciary duty by failing to monitor the risk Lehman was taking.

Okay, it seems that the standards for negligence and fiduciary duty take a lot to meet. This reminds me of what an NBA announcer said recently, observing a play that dangerously catapulted an L.A. Lakers’ player to the floor; he observed when the referees ignored it, “No ambulance, no foul.”

Much will be written about the culture at Lehman. Some insights are evident in a Vanity Fair article this month. Former CEO Fuld spent 42 years at Lehman but praise is scant. Dubbed the Gorilla of Wall Street, he earned Time Magazine’s designation as one of the 25 people to blame for the financial crisis.

In response to the Examiner’s findings about balance sheet manipulation and failure to disclose $50 billion of off-balance sheet assets by the Repo 105 trick, Fuld said through his lawyer, that he didn’t know about them, didn’t know what the transactions were, hadn’t structured or negotiated them, and none of the senior officers, lawyers or outside auditors had raised it with him. A tough sell under Sarbanes Oxley because by signing Lehman’s certified financial statements, he accepted responsible for their accuracy.

In response to criticism of professional negligence, Ernst & Young says their last Lehman audit was for the FY ending November 30, 2007; and it was conducted in accordance with GAAP (generally accepted accounting principles). Lehman filed bankruptcy September 15, 2008. This week, United Kingdom regulators demanded the accounting firm hand over documents related to their role in Lehman’s collapse.

So, a dead body. Ongoing investigations. Where is an ambulance when you need one?

Gael O’Brien, March 18, 2010

The Week in Ethics


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