Who’s Minding the Store in Corporate America?

Sometimes you get one of those, waddya call ‘em, iconic moments.  Bush standing at the Twin Towers with the megaphone.  (Bush standing next to “heckuva job” Brownie).

We got a classic on the evening news today.  The Chief Executive Officer.  Of the Bank.  Of America.  Saying with a straight face the most amazingly truthful truth in front of Congress: namely that he didn’t run his own bank—his securities lawyers did.

First, the facts, as reported by the Wall Street Journal:

[lawmakers] pressed Mr. Lewis on why Bank of America did not inform its shareholders of its growing concerns with the losses at Merrill Lynch if the issue was serious enough for Mr. Lewis to fly to Washington and speak with federal officials about abandoning the deal by invoking the "material adverse change" clause.

"If there is an event that you consider so significant that it may allow you to invoke the [MAC] do you not think that same event is of interest of shareholders and requires you in your fiduciary duty to disclose it?" Rep. Peter Welch (D., Vt.), said.

"I leave that decision to our securities lawyers and our outside counsel … I’m not a securities lawyer," Mr. Lewis said.

As one Congressman pointed out, the deal was approved by shareholders in December and cost the US taxpayer $20B the next month.  But, as Mr. Lewis implied, his lawyers advised him what to do, and of course, like a good little CEO, he took his lawyers’ advice.  Don’t tell.  After all, you might get in trouble for leading.

Who’s minding the store in corporate America?  CEOs or lawyers?  Or–is it even worse than that?   

This is a veritable Where’s Waldo book of things wrong: I’ll just focus on one.

Where is Accountability in Business?

Nowhere near Mr. Lewis, that’s clear.  But as we said, he is iconic.  An avoider of truly Madoffian proportions does not achieve that status alone; he stands on the shoulders of previous avoiders and a system of avoidance.

It starts with a “mistakes were made” kind of attitude. (See Charles Baxter’s classic 1994 essay here). 

Lack of accountability gets reinforced by a subtle shift from “ethics” to “compliance,” as brilliantly described by Harry Markopolis, the Madoff whistleblower: “The SEC’s main focus is to mindlessly check to see if registered firms’ paperwork is in order and complies with the law as written.”

But it’s business programs too.  The lack of accountability ironically traces back to a great intellectual achievement—the multi-industry success of business process re-engineering.  In industry after industry, business processes have been broken up into pieces and stitched back together by contracts linking outsourcers to purchasing departments.  All done by lawyers.  And all lacking a sense of commercial commitment or relationship between buyer and seller.  (And taught proudly in business schools as "best practices" and "benchmarking").

I’m fond of quoting Phil McGee’s dictum: all management problems boil down to two: a tendency to blame, and an inability to confront. 

An inability to confront the truth, facts, accountability, responsibility, obligation, fiduciary duty.  All these are terms that are far too visceral and human to be captured adequately in the cold rational phrases of the law.  Which is why the best jurists always know the “rule of law” should leave a lot unsaid.

I am painfully aware that our only MBA president will almost certainly appear more inept at management than the lawyers who preceded and followed him.   But I’d argue that Clinton and Obama each know what Bush—and his contemporary, Mr. Lewis at B of A—did not.  That the law should have limits.  "Leading by the law" is nearly oxymoronic; perhaps it even takes a lawyer to fully appreciate how foolish it is. 

It’s galling enough that Mr. Lewis, I suspect, is being disingenuous.  He doesn’t really follow the opinion of his lawyers in managing the company.  He employs them to provide convenient cover.   What’s really galling is that the lie he tells—that he does manage by following their advice—is a lie that has become socially acceptable.  No one calls him on that lie.  Invoking "MBL" (management by lawyers) has become the unassailable high ground of management and leadership. 

We have moved from a “buck stops here” standard of leadership to one based on “I didn’t commit a crime,” a standard now smugly on display by our corporate leaders.  

Where’s the shame?