The Nobel Committee’s choice of a wartime president for its Peace Prize produced uncertainty and controversy at precisely the time when these are the last things the world really needs.
The traditional impression of Nobel Peace Prize winners is that of a Rev. Dr. Martin Luther King Jr., who led a sea change in civil rights but did so proclaiming non-violence as a path to those rights. It is of a John Hume David Trimble, who found a way to bring the Catholic and Protestant factions of Northern Ireland together and end the generations of violence that so long plagued that land. And it is of a Lester B. Pearson, who brought pride to Canada and relief to the world when, as minister of external affairs, he helped to avert war in Suez in 1956 and established the concept of United Nations peacekeeping.
Avoiding war and ending it; eschewing violence and facilitating peace have been the hallmarks of the prize awarded each December in Oslo. But in selecting U.S. President Barack Obama for the honor this year, at a time when he leads a nation at war in Iraq and Afghanistan, the Nobel Committee has broken new ground. No Nobel Laureate has ever accepted the prize while waging war, no matter how vile the enemy or righteous the cause. And certainly no one has accepted it having just escalated the number of troops involved.
In accepting his award today in Oslo, Mr. Obama gave a speech that was both strong and humble, inspiring and reassuring. But in advancing the idea that some wars are necessary to defend the peace; that some enemies are so threatening that they need to be eradicated, however indisputable that is, he took the Nobel Committee into territory where it, and no other recipient, has ever gone before.
Perhaps it is a view of the world that will be sustained over time and winners of the iconic prize for peace will be warriors engaged in battle. It may be that peace is about more than non-violence, and that the use of force is both justified and demanded when there is a moral imperative to act. There have been occasions in recent years – Bosnia and Darfur come to mind – when the West was too slow to intervene in the face of the atrocities that were occurring. On the other hand, perhaps this will be seen as an aberration and the view will be reasserted that the quest for peace should be something unique, that war offers no sure guarantee of peace, and, at the very least, that the recipient should not be leading a nation at war.
As we suggested when the award was announced to a stunned world months ago, none of this is Mr. Obama’s fault. He did not ask for this prize. He sought not to offend anyone in accepting it, and to honor those who have come before him. He gave a fine speech. But it does seem that, if one is to take things like the Nobel Prize for Peace seriously, the custodians of it may have unleashed precedents and raised questions that make the world – and their section of it, especially – more complicated.
Times of sea change, which by any economic or geopolitical measure this juncture in the 21st century surely is, also need their quiet harbors of calm and predictability. It would be churlish not to congratulate Mr. Obama on his achievement and acknowledge the skill and forthright manner in which he tackled the inherent conflicts between peace and war. But the fact is that this was an award that produced uncertainty and controversy at precisely the time when these are the last things the world really needs.
The company, whose management and board have displayed such colossal contempt for common sense and good judgment and have inflicted so much damage on shareholders and employees, deserves to disappear into the winter snows of folly. Its employees do not.
Once again, Nortel – now just the pathetic remnants of a once iconic global brand – has shown its true DNA. It lacks the corporate gene for grasping reality. The latest example came this week when the company, while in bankruptcy protection and after denying severance and benefits to thousands of employees, managed to come up with millions in bonuses for top executives. As we have noted before, from the time Nortel was founded as an offshoot of Bell Canada – with that firm’s monopolistic culture and pampered directors establishing the tone – to the excessive compensation it lavished on previous CEOs (one of whom still faces criminal charges) and the sea of debt it chose to set its course upon, this company has never adapted to reality very well – or accounting rules, for that matter. It has had, as a defining hallmark of its culture, the tendency to reward and mollycoddle those in the executive suite and in the boardroom, while viewing employees as expendable bodies.
The outcome, though perhaps predictable, is of course sad on many levels, and especially in its human dimension. But a company whose management and board have displayed such colossal contempt for common sense and good judgment and have inflicted so much damage on shareholders and employees, deserves to disappear into the winter snows of folly. Its employees do not. If enough public outrage can be mounted – and it is surely deserved – perhaps management can be forced to share the pain in the same way Nortel’s employees have, by sharing the dollars that go with their obscene bonuses. It is unfortunate that little indignation is being voiced by the judge who is overseeing the process. Canada has few jurists like U.S. District Judge Jed Rakoff, who, it will be recalled, refused to go along with the cozy settlement concocted by the SEC and Bank of America last summer. He thought it was offensive to the public conscience. So is the compensation arrangement approved in court proceedings for Nortel’s executives.
Ultimately, after having been the most valued company on the TSX, all that there is to show for the shattered remains of this once promising enterprise is a lesson in hubris and, more particularly, the consequences of taking future success for granted, of assuming trophy directors actually are plugged into the company and know what is going on, and of buying into the myth of excessive compensation where riches for a few at the top are taken as a guarantee for all the other investors and employees who have a stake. Perhaps Nortel can do a better job in that role than it did when, in the mid-1990s, it used to give keynotes at corporate governance seminars holding itself up as a model of sound governance and enlightened leadership.
As Winston might have said: Some governance. Some leadership.
Freedom, in either its political or economic appearance, has never been a lasting guest in the American home when it was merely taken for granted.
The celebration of Thanksgiving in America is rooted, more than anything, in the blessing of freedom and opportunity. Those were the hallmarks that beckoned the first settlers to the far off shores of the new England. They are what is celebrated in the uniquely American way each year at this time.
Through evolution and revolution, titanic wars and epic financial upheavals, America has come to define ideas like a free market, individual choice and accountability among those who exercise power – whether in the economic arena or in the political. In many ways, these principles have become a model for much of the world. But their ascent has not been without cost. And the need to defend these values has, time and again, come with a painful price tag.
As America contemplates its blessings this Thanksgiving, it is timely for it to consider whether it serves the cause of political freedom by propping up corrupt regimes, such as the one that rules Afghanistan today, where, right now, thousands of U.S., Canadian, British and other NATO military personnel are placing their lives on the line, and where so many have paid the ultimate price. It is also wise to consider whether the idea of free market capitalism is well served by the constant enrichment of the regime in China, which promotes not a capitalism which extols individual rights and freedom of choice, but an authoritarian capitalism based on secrecy, tyranny and force. This system was well illustrated earlier this month when President Barack Obama visited Beijing and where his “media conference” was not permitted to see a single question asked. That is the way in China; it is not a model America looks good in adopting.
It is also time to ponder whether America is well-served by its financial system, which, after blundering into the worst crisis since the Great Depression and needing a head-spinning succession of taxpayer bailouts (with perhaps more to come), is rewarding itself with billions in bonuses while millions of Americans are losing their jobs, their homes and their dreams. Then there is the Federal Reserve system, which appears more and more to view its role as pushing out trillions to keep Wall Street happy, while Main Street is left to cope under an almost unfathomable mountain of debt and a coming gale of inflation from which there will be no shelter. Far from preserving the freedom of Americans in recent months, these institutions seem increasingly to have made them hostages to profligacy and misjudgment.
From the battered Pilgrims at Plymouth Rock and the courageous Rangers, Marines and service personnel in Iraq and Afghanistan to a struggling middle class and the steadily vanishing members of the Greatest Generation too often left in poverty and fear, Thanksgiving is a lunch that has never come free. And freedom has never been a lasting guest in the American home when it was merely taken for granted.
One of the dangers of excessive pay is that it tempts CEOs to think that maybe they really are god-like superheroes. But few have actually boasted about the role like Goldman Sachs’ s Lloyd Blankfein.
It has been a consistent view of these pages, and one much longer voiced by its author over some two decades, that executive compensation poses a number of systemic risks to companies, to the institution of capitalism and to society generally. One of those risks, the effects of which is being experienced in the economic slowdown today, is that stratospheric compensation tends to distort how CEOs view the world and tempts them to venture into unwise and perilous territory (see, for instance, 40-to-1 debt leverage; unbooked credit default swaps and subprime mortgages). Some are inclined to believe that they truly are the god-like superheroes they would have to be in order to justify pay levels that swell into the high tens of millions on a regular basis. Now, we have additional proof for our theory.
Earlier this week, the Times of London reported Goldman Sachs CEO Lloyd Blankfein, whose compensation in 2007 amounted to more than $70 million, as saying that he was doing “God’s work.” Goldman has always been filled with heavy-hitters who go on to exercise considerable sway in government (see Henry M. Paulson Jr.). It seems the influence has taken on a decidedly out-of-the-beltway, even out-of-this earth, tone.
It is difficult enough for Goldman to justify the compensation it regularly doles out. To add to that PR nightmare by taking on the role of an emissary from God may prove to be more than even this fabled company can pull off. Such talk only serves to divide Wall Street from Main Street further at the very time when public confidence in America’s financial institutions, and respect for its captains, still remains fragile.
Paying millions to a CEO like Mr. Blankfein, or any number of his contemporaries, can get you, well, a very highly paid CEO. But can it get you a leader who personifies both common sense and good judgment and is able to avoid making stupid statements that cause him and his company to be the laughing stock of late-night comedians and op-ed page commentators? That is the question, rather less for heaven than for earth, where the generous American taxpayer, and not Divine providence, is most responsible for placing Goldman Sachs, and the Wall Street economy it depends upon for its success, back on track.
Even a former Premier of Ontario claimed he was duped as he presided over this fraudster’s scheme.
The odd name YBM Magnex suddenly emerged from its shadowy past last week when the FBI placed Semion Mogilevich, its Russian mobster mastermind, on its “Ten Most Wanted” list. He is accused of swindling Canadian and U.S. investors out of $150 million in a complex international financial scheme. Authorities say the fraud involved preparing bogus financial books and records, lying to Securities and Exchange Commission officials, offering bribes to accountants and inflating the share values of YBM, which was headquartered in Newtown, Pennsylvania but whose stock was traded on Canada’s top exchange, the TSE (now TSX). The policing of potential fraud was a low priority for the TSE in those days, and the reputation of Canada’s capital markets suffered significantly during this period. So did confidence in its corporate governance.
There continues to be an active debate as to whether Canada is tough enough on white collar crime, and whether, without a single national securities commission, as I and others have long advocated, there can be any hope for a more robust enforcement regime.
To increase its lure to investors, the company attracted some prominent independent directors, including David Peterson, a former premier of Ontario. In testimony some years later before the Ontario Securities Commission on the matter, Mr. Peterson admitted that he did not make notes at company board meetings and did not retain any records. He was, for a scheme like YBM and Mogilevich, the ideal slumbering director.
I was one of the first to write about the scam and the failures that led to it, in 1998. Below is one of those articles, published in the Financial Post more than a decade ago.
Wednesday, July 15, 1998
Guest Column
YBM simply the latest example
Top securities regulators asleep at the switch again
By J. RICHARD FINLAY
The Financial Post
History sometimes repeats itself. In Canada’s premier securities market the failure of regulators to respond to danger signals is becoming an alarming habit: Cartaway, Timbuktu, Bre-X, Delgratia.
The latest case involves YBM Magnex International Inc., whose trading was halted on the Toronto Stock Exchange in May amid questions over the company’s 1997 audit and in the wake of police raids on its corporate headquarters in Pennsylvania. The scandal bears such eerie similarities to the Bre-X Minerals Ltd. scam of just a year earlier one is tempted to conclude it is the fickle hand of fate that is writing this drama. But it is not fate. It is the recurring folly of this country’s top securities regulators.
Both Bre-X and YBM began their journey on the Alberta Stock Exchange. Listings on the TSE and inclusion on its prestigious 300 composite index followed for both companies. In April 1997, the exchange’s president, Rowland Fleming, assured investors the Bre-X debacle had “heightened the state of alert in our market surveillance department.” But, later that same month, YBM was added to the TSE 300 index.
TSE officials have since admitted they knew then of criminal investigations on two continents into an alleged Russian crime figure with a stake in YBM. However, neither the exchange nor the Ontario Securities Commission, which was also aware of the investigations, thought it advisable to disclose these facts to investors at the time of YBM’s listing and later stock offering. It is an omission that makes Canada’s top securities regulators potentially more culpable in the YBM fiasco than they were in Bre-X.
Another Bre-X-type danger signal was the extensive insider trading occurring before the accounting firm of Deloitte & Touche Ltd. announced in May it was unable to certify YBM’s 1997 financial statements. The company’s president, Jacob Bogatin, and several officers sold more than $2 million worth of stock between late February and April.
Troubling too is the trading activity of Kenneth Davies, one of YBM’s independent directors and a member of its audit committee. He reportedly made a profit of nearly $250,000 selling YBM shares after the board learned Deloitte & Touche was suspending its audit of the 1997 figures but before that information was disclosed to the public.
Clearly, regulators need to be more alert to insider trading in companies with questionable track records. In addition to the police investigations they knew about, regulators had forced YBM to have its 1996 books re-audited, resulting in a restatement of material facts.
Directors of Bre-X also engaged in heavy insider trading before negative revelations that saw share values evaporate. For more than a year, the OSC has been investigating the Bre-X trades for possible securities law violations. Yet the regulator still hasn’t released any information, this despite its increased resources thanks to a changed funding formula — including a new chairman with an annual salary of more than $450,000 — and enormous public interest.
Also, the corporate governance practices of these two companies were well known to both the TSE and OSC, and to YBM’s legion of mutual fund and institutional investors. Bre-X had an insider-dominated board that violated exchange guidelines on good governance. YBM’s list of outside directors includes Owen Mitchell, who is also a director of First Marathon Securities Ltd., the company’s lead underwriter. Former Ontario premier David Peterson is also a director, while his law firm acts as Canadian solicitor of record for YBM. Peterson, like other directors, has also participated in the company’s generous stock option plan. TSE guidelines on corporate governance advise directors should keep themselves “free of relationships and other interests which could, or could reasonably be perceived to, materially interfere with the exercise of judgment in the best interests of the corporation.”
The parallels between Bre-X and YBM show how little the TSE and the OSC have learned — and how vulnerable the public is to regulators’ omissions that put their investments at risk. Since these issues involve the integrity of Ontario’s capital markets — a key Canadian asset in the global economy — it is time for Ontario Finance Minister Ernie Eves to order a review of what needs to be done to make the TSE and the OSC more vigilant. Neither Canada nor the investing public can afford to have such regulatory folly repeat itself another time.
J. Richard Finlay heads the Centre for Corporate & Public Governance.
