Who’s a Poor Murdoch to Trust?

Gregory (Scotland Yard detective): “Is there any other point to which you would wish to draw my attention?”

Holmes: “To the curious incident of the dog in the night-time.”

Gregory: “The dog did nothing in the night-time.”

Holmes: “That was the curious incident.”

Silver Blaze, The Memoirs of Sherlock Holmes, by Sir Arthur Conan Doyle

Murdoch: This is the most humble day of my life…we have broken our trust with our readers…

Q: Do you accept you are ultimately responsible for this whole fiasco?

Murdoch: No.

Q: Have you considered resigning?

Murdoch: No. Because people I trusted let me down…and I am the best person to clean this up.

Mr. Rupert Murdoch, 19 July 2011, before a British Parliament Committee, ABC News

Rupert Murdoch claimed in his July 19 2011 British Parliament Committee appearance that “people he trusted” were responsible for the News of the World phone hacking scandal.

Can you say ‘cognitive disconnect?’ Few people in the word can simultaneously believe that a) Murdoch was not responsible for the hacking fiasco, b) he was done in by those whom he trusted, and c) that he nonetheless remains the best person to clean things up.

I sincerely doubt that Murdoch himself believes all three of those propositions.

And so we have yet another trust-destroying scandal, the principals posturing and spinning, and the public left asking, where is Sherlock Holmes when we need him–to ask why there was no barking dog at the scene of the crime.

And the answer is–just like in the Holmes story–because the watchdogs were very familiar with the crook whodunit.

The News Corp.hacking scandal has three points in common with most systemic failures of trust–think Enron, Watergate, and the recent financial crisis:

  1. “Leaders” who have a tendency to blame and an inability to confront;
  2. Corporate cultures based on secrecy and rules, not on virtues and values;
  3. The compromise of a social institution key to social trust.

Phony Leaders

Let me propose two ironclad indicators of bad leadership. First, one of my favorite gems from Phil McGee—most management problems, he feels, stem from a tendency to blame, and an inability to confront.

Rupert Murdoch’s brazenness of blaming, even in today’s climate, I still find breathtaking. It was “others” who betrayed him. Not his direct reports, of course, whom he says he trusts with his life. But “others.”

This is not new. Ken Lay and Jeffrey Skilling at Enron didn’t blame themselves, it was “others.” Ditto for Abu Ghraib in Iraq, Nixon at Watergate, and so on. Maybe the original blamethrower was King Henry II, who famously shouted, “Will no one rid me of this troublesome priest?” meaning Thomas Becket.

Someone of course did, and the King was conveniently left with what came to be known as ‘plausible deniability.’

When a “leader” moans that he has broken his public’s trust, and that this is the humblest day of his life—wait, wait for it—and then blames someone else, well, you’ve got an untrustworthy leader at the top.

The other indicator is the presence of the phrase “career-limiting move.” If that phrase is current in your company, it’s a canary in the mine for a lack of transparency. People get fired for saying or doing things they are “not supposed to say.” That is, the norm is silence, and the implied threat for speaking up is your career.

And if your company acronymizes it to CLM, double-trouble for you.

Bad Corporate Cultures

The best way to spot an untrustworthy corporate culture is to look at how it tries to be trustworthy.  If it relies on secrecy and threats, well, enough said.

But in addition, a culture that relies on laws, procedures, processes, rules and compliance—and little else—is in trouble.  Trustworthiness and ethical behavior are viewed in such cultures as just another set of rules to be gamed.  There’s a very thin line between “keep your nose clean” and “just don’t get caught,” and that line has a way of breaking down.

A corporate culture that fosters trust, by contrast, is almost certainly one that relies on virtues and values, and that preaches them all the time.

How does News Corp. stack up? Listen to this description from Andrew Ross Sorkin’s Dealbook column:

“This is a board that qualifies for an ‘F’ in every category,” Nell Minow, a member of the board of GovernanceMetrics International and founder of the Corporate Library, a governance firm, said without any hesitation. “It is the ultimate crony board.”

Transparency? Values? I don’t think so.

Which brings us to the third trait: a threat to societal institutions of trust.

Compromised Social Institutions

Watergate is, of course, the gold standard of corruption, the poster child for scandals.  How does the News Corp. scandal measure up?

Surprisingly well. That is, bad. Watergate compromised the US Justice Department, the White House, a major political party, and ultimately a President. But there was sort of a hero in that story—the press.

In the Murdoch case, the press is itself on trial.  And–so is Scotland Yard.  Right there, the players are bigger than in Watergate.  When the cops and the press are in cahoots, you have muscle backing up politics.  The rule of law is at stake.

Think I’m kidding?

Think about your perception of this case to date–even from media other than News Corp. I’ll bet your image is loaded with thrown pies, hacked phones, and trophy wives.  Speculation in the US media is focused on whether it will turn out that 9/11 victims’ phones were hacked.

Meanwhile, did you know that News Corp.’s News America Marketing subsidiary has paid out $655 million dollars to settle charges of corporate espionage and anticompetitive behavior—in the US?  Do you think Rupert Murdoch didn’t know about more than a half-billion dollars paid out that way?

Did you know that:

News America was led by Paul V. Carlucci, who, according to Forbes, used to show the sales staff the scene in “The Untouchables” in which Al Capone beats a man to death with a baseball bat.  Mr. Emmel testified that Mr. Carlucci was clear about the guiding corporate philosophy.

According to Mr. Emmel’s testimony, Mr. Carlucci said that if there were employees uncomfortable with the company’s philosophy — “bed-wetting liberals in particular was the description he used” Mr. Emmel testified — then he could arrange to have those employees “outplaced from the company.”

You might wonder what became of Mr. Carlucci? Rupert Murdoch appointed him head of the New York Post, calling him “without peer in the consumer advertising and marketing industry.” You know the New York Post: they’re the Murdoch paper that branded a New York hotel maid a hooker on the front page.  The story was hugely helpful to one Dominique Strauss-Kahn, but has not been verified by any other newspaper to date.

But I digress.  The problem is that the press wields enormous power, even in allegedly educated and refined countries.  So do the police.  And when Scotland Yard’s leadership, and even Downing Street appear compromised by an evil corporate culture like News Corp.’s, there are serious implications for society’s ability to trust anyone.

Who’s a poor Murdoch to trust? That’s what Rupert Murdoch would have you ask.

And if you can believe the nerve of his News Corp. empire and its culture, check this clip from Fox News.

Syndicated columnist Cal Thomas explains the phenomenon as “piling on…the left has been itching to get after News Corp. for years.”

Just another witch hunt, going after poor Mr. Murdoch. Makes you wonder if he paid the guy with the pie.

For the rest of us, keep your ears open. Emulate Sherlock Holmes.  Look for the barking dog, and when you don’t hear one—cry bloody murder, because someone has to.

Bad for the Customer, Good for the Stock Price: Wait, What?

Bill Bachrach has a business somewhat like mine, though with a specific vertical industry focus: he teaches people to become trusted professionals in the field of financial planning. I’ve read much of his material over the years and have the highest regard for what he has written (not to mention what he’s done—like the Hawaii Ironman Triathlon).

The other day, Bill found just the right words to express a paradox. Just how is it that an industry, by burning its own customers, can raise its stock price? We’ll come back to that: first, here’s Bill, from his newsletter The Trusted Financial Advisor:

The headline reads: "Wall Street wins big as Dodd drops fiduciary provision." And the first line of that article is "Chalk it up as a win for the securities and insurance industries." How do the securities and insurance industries win when the client loses? It’s a fascinating way to view the world, but not surprising.

Here’s my translation: "the lower the standards the easier it is for us to manage our advisors, salespeople, and agents." It’s the usual product-oriented, fear-based thinking from our industry at-large and it proves, once again, that you have a competitive advantage as an individual Trusted Advisor who chooses to put the client first.

Can you believe what you just read; you have a competitive advantage by putting the client first? Yes, you do. Doesn’t everyone put the client first? Apparently not. Amazingly enough, our industry considers it a win when they don’t have to adopt the highest standard of care for their clients. Wow.

Point One: There Are a Few Bad People Out There

Now, you can argue that the industry is right in its argument that the absence of a fiduciary standard is actually in the best interest of the client, but I’m with Bachrach on this one. If you disagree, I’ve got a bridge for you.

Some people think trust is naïve, that the world is a nasty place, that no one is trustworthy, and that trusting is a foolishly suicidal act.

Trust is not naïve—there is no trust without risk, for example—but it needs to be said that those people are not all wrong, not by a long shot. There are industries more rife than others with untrustworthy behavior, and the business of money, at least in recent years, is one of them.

But there’s a bigger issue that Bachrach’s indignation suggests:

Point Two: Watch Out for Profit-Justified Ethics

There are a number of researchers out there—I won’t name names, but you could research them easily—who invest quite a bit of time and energy in proving that "good" business is also good business; that you can do well by doing good. Profitability is shown to be correlated with values like transparency, social responsibility, candor, and customer focus.

I’ve studied a lot of that work, and think it is generally and fundamentally true. Doing good really does result in doing well. But—not in all cases, and not necessarily in the short run.

As Bachrach points out, you’ve got an entire industry that apparently believes they can make more money by gouging their customers than by being straight with them. Are they wrong? Put it this way: I wouldn’t even bet your money against Wall Street on this one. They are most decidedly not stupid.

Why’s this an issue? Because many of these socially-minded thinkers—whom I happen to think are basically right, and whom I support—are playing with fire when they use profitability as a justification for “good” behavior. The more you say, “the good-doing companies are actually more profitable than the evil companies,” the more you conflate the two. And the more you open it up for some companies to infer the converse and the inverse:

“It’s making the most money, so it must be the good thing,” and

“It’s not making money, so it must not be the good thing.”

And what you’ve then done is to re-define ethics in terms of profitability.

Now, there is no harm in pointing out that good deeds are usually more profitable. And none of these analysts intend to argue in favor of the perverse results. But intentions have a way of getting misinterpreted by those who have ulterior motives; those who are, oh let’s just say, bad.

It’s similar to what L.J. Rittenhouse said in a recent Trust Quotes interview, the "result of trying to replace moral standards with legal standards" is a lowering of integrity. So it is here, when we don’t guard against the turning of the ethical tables.

Just to be clear: if something is ethical, it’s usually profitable. But if it isn’t profitable, that doesn’t mean it isn’t ethical. And just because it is profitable doesn’t mean it is ethical.

There will be the more-than-occasional situation where the right thing to do is simply not the profitable thing to do. That’s when you find out who’s ethical, and who’s simply hustling their own customers.

Shaming Bribe Takers with Zero Denomination Currency

A most curious post showed up on the site. It tells the story of 5th Pillar, a unique initiative to mobilize citizens to fight corruption in India.

According to Anand, the idea was first conceived by an Indian physics professor at the University of Maryland, who, in his travels around India, realized how widespread bribery was and wanted to do something about it. He came up with the idea of printing zero-denomination notes and handing them out to officials whenever he was asked for kickbacks as a way to show his resistance.

Anand took this idea further: to print them en masse, widely publicize them, and give them out to the Indian people. He thought these notes would be a way to get people to show their disapproval of public service delivery dependent on bribes.

The notes did just that. The first batch of 25,000 notes were met with such demand that 5th Pillar has ended up distributing one million zero-rupee notes to date since it began this initiative. Along the way, the organization has collected many stories from people using them to successfully resist engaging in bribery.

When confronted with a demand for a bribe, the citizen offers up a zero-rupee note. This act turns out to have serious, positive consequences. In one case, “a corrupt official in a district in Tamil Nadu was so frightened on seeing the zero rupee note that he returned all the bribe money he had collected for establishing a new electricity connection back to the no longer compliant citizen.”

The Power of Shame Over Corruption

The article suggests several reasons for the power of the zero-rupee notes. Corrupt officials become frightened of being discovered; they also don’t want to have disciplinary proceedings established.

But the most powerful reason, says the article, is that the fact of the many zero-rupee bills’ existence empowers citizens. They no longer feel alone, and therefore have the courage to stand up against corruption.

What I find interesting are the comments to the blogpost. About a third of them are skeptical, saying it won’t work—this after reading an article about how it does work. Others say it works temporarily, only new laws will work permanently, it’s only a novelty.

Even many who say it does work are prone to focus on the odds of getting caught—suggesting the zero-rupee notes alter the rational risk-taking behavior of the corrupt officials.

I suggest they’re over-thinking it. The power of the zero-rupee note is what the article said it was—the empowering of a disenfranchised group in a very public way.

Call it shaming.

It’s exactly what I wrote about the other day in the confusion over ethics and finance. In a western-driven world which worships rational analytics, ascribing all motives to deductive calculations of self-benefit, we tend to under-rate the impact of the moral disapproval of our peers.

Whether we’re talking about corrupt civil servants in Tamil Nadu, or self-aggrandizing employees in a US company, I think most people are still capable of being ashamed; and that shame comes from a larger group of human beings. In situations where the law seems behind the curve, a deeper sense of community can restore balance.

Shaming is the public expression of a community’s view; we shouldn’t under-estimate its power, for good and for bad.

From Mistrust to Cynicism to Corruption

Q. What do Mark Twain, Clint Eastwood and Bernie Madoff have in common?

A. They all tell tales of the path from mistrust to corruption.

In 1879, Harper’s Monthly published Mark Twain’s wry tale The Man that Corrupted Hadleyburg—a dark, cynical sketch of a town whose pride rested on its reputation for incorruptibility. A stranger manipulates that pride into corruption, and makes the town the cause of its own ruin.

The Wikipedia summary makes for eerie reading in these past-Madoff days.

94 years later, Clint Eastwood channeled the same stranger/corruption theme in High Plains Drifter, his second directorial effort. Elizabeth Abele’s review nails it:

…not only is there little difference between the law and the bad guys, but the "good, decent people" [of Lago, Arizona] do not appear deserving to be saved. In their silence and passivity, they are as guilty as anyone. The approaching outlaws are in many ways a McGuffin. The Stranger’s true adversaries are the townspeople–who simplistically reward the Stranger for his opening slaughter of their hired guns by hiring him as their savior.

Cue the Good Townspeople burned by Bernard Madoff, financial crackhead (I mean "crackhead" in the sense of someone consumed by an ever-growing need for more and more money to feed his insatiable, and growing, need. If the shoe fits…).

Stipulated: Madoff’s a bad man, and many innocent people were harmed.

But a great many other people bear the same kind of responsibility as the citizens of Hadleyburg and Lago. Such as “feeder” funds like Fairfield Greenwich Group , which claimed in writing (and charged greatly) to perform high levels of due diligence on its Madoff investments.

And how about its sophisticated partners and customers at institutions like Banco Santander and Union Bancaire Privee? Like the Good Townspeople of Lago, it beggars belief that none among them had suspicion skeletons in their closets.

Here’s the roadmap downhill from broken trust.

In Twain’s and Eastwood’s stories, an organization starts out proud of its reputation for rectitude. Then someone descends into venality. It starts with “borrowing” to tide things over the weekend. But–as with any crackhead–it doesn’t stop there.

There comes a critical point when the bad guy is found out. The organization or society of which he is a part can go one way or the other. It can be horrified and reject the miscreant. (Let’s refer to this as the “right thing to do.”)

Or, it can choose “tolerance.” He’s really a good guy, he hasn’t done it before, haven’t we all cheated on our taxes one time or another? Just let it be.

And the crackhead steals the family silver.

Tolerance then leads to cynicism. Hey everyone does it, it’s nothing new, what are you, naïve, don’t you know how things work? Knock it off. It’ll work out.

And the crackhead knocks over a store.

Finally, you end up with corruption. Hey, Bernie’s making a ton for everyone. Not everyone can get in on it, but I know someone who can get you a piece of the deal. Shhh, everyone knows it’s a little “off,” but look at those returns. Waddya, nuts? Just sell a little to your cousin. Hey if you don’t, someone else will. Might as well be you. I’ll be gone, you’ll be gone, what’s the harm. Wink wink, nod nod, know what I mean, know what I mean?

And the crackhead corrupts everyone.

In the Eastwood version, the Stranger renames the town “Hell” as he rides off into the sunset. Twain’s Hadleyburg too gets a name change.

John Wayne didn’t care for this movie (or for Eastwood in general, I suspect). But while John Wayne was hell on bad guys, I’m not sure he knew how to recognize a helltown of crackheads. And just changing the town name won’t do the trick.